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If you’re thinking about joining the world of landlords, you should know that it can be very profitable and help unlock your financial freedom.
No matter if you’re thinking about holding onto the property for some years or flipping it, you can make some serious money if you go about it the right way.
In this article, we’re going to show you how to buy rental property so that you can make a profit, no matter what your strategy is. Speaking of that, let’s get right to a few questions you need to ask yourself.
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You need to have a strategy before you buy real estate for investment purposes. If you don’t, you could find yourself over your head. Let’s talk about some profitable real estate strategies you can employ. The most popular ones are the buy-and-hold and flipping strategies.
The buy-and-hold strategy allows you to own a home for several years and allow it to appreciate over that time. If you have a tenant, you can gain additional income by collecting rent every month.
Because it is a long-term strategy, the buy-and-hold approach can allow you to make money constantly on your property.
The downside
The downside of holding onto the property is that you have to wait a long time to see a profit on your initial investment. Also, you run the risk of the market having a downturn and the property actually losing value, which may put you behind the eight ball when it comes to appreciation.
Home-flipping is not a new concept, but when the market experiences a down period, more investors consider this option. The idea behind flipping a home is to buy it in a distressed state or when the market is down and sell it either when the market rebounds and when sufficient improvements are made to the home so as to raise its value.
The downside
The downside of home-flipping is that you make find yourself out of a lot of cash upfront in order to fix the property. Sometimes owners never make back their original investment.
To decide whether you can make a profit from your rental property, you have to count your expenses. You won’t know just how much money you’ll need to generate until you make a list of things you’ll be paying for on a monthly and yearly basis.
Try to evaluate the home to see what the expenses could be. Does it need a new roof? Will you be pouring concrete or reshaping the driveway?
Here is a list of some expenses you may incur:
After you’ve made up list, you need to add up the figures and see what your profit is.
Your return on investment is a mathematical equation that real estate investors use to determine whether buying a property makes financial sense for them.
While some endeavors have very good returns in the high double-digits, in real estate you can expect anything above 10%. It’s perfectly alright to come in above that figure as well.
The truth is that your ROI will be tied to the amount of risk your budget is able to withstand. It’s different for every investor.
You might not know what you should charge for rent. A good rule of thumb is that for every $50,000 you should charge $50. So if the home is worth $250,000, you should charge $250 a week. That’s $1,000 a month.
Once you have an idea on what your ROI is, it’s time to go ahead. Now that you know what kind of money you can make, it’s time to buy the property.
The first real step to owning property is to get pre-approved for financing your mortgage. Mortgage lenders are typically going to want 20% down, especially for a rental property.
If you want a cheaper down payment, the property has to be owner-occupied. That means if you’re interested in buying a multi-family dwelling (say a duplex, triplex or some apartments) you can qualify for a down payment of around 9% give or take a point.
Now comes the fun part: Searching for properties!
For rental properties, it’s incumbent on you to research the neighborhoods as well as the properties because some areas frown upon rental units.
For instance, if you see a multi-family property in a neighborhood with $300 homes, you may face some backlash from nearby homeowners who feel strongly that their neighborhood or street shouldn’t have different tenants rotating in and out. That’s extreme, but it does happen.
Also, when house-hunting, you need to decide whether you’re going to work with a Realtor or go it alone and look for the properties yourself. There are pros and cons to each decision, but just know that your Realtor will charge you a fee due upon the closing of the home.
When you find your rental property, make sure you follow these steps so that there aren’t any problems.
If your appraisal comes in higher than the comparable homes, congratulations: You’ve already got yourself some equity.
The way a home closing typically works is that three people meet to close the deal. Although more people can be there (family, etc.), the essential parties are the seller, buyer and a real estate attorney.
At closing, the ownership of the home switches hands. This is indicated by signing the documents, including the transferring of money from escrow accounts, title fees and modifying the deed on the house.
Typically you can close about 30 days out, but you can do it much sooner if both parties agree. Once you’re all at the closing table, the deal should take one and a half to two hours.
Becoming a landlord can be an important way to financial wealth. If you’re contemplating buying rental property in Louisiana, there’s a strategy that you have to adhere to.
If you’re thinking about purchasing some rental property in Louisiana, you should know that it’s a great investment to make for your future.
Renting property is a great way to make additional income. For some, it’s been a get-rich scheme, but oftentimes, it’s not. Go into it with your eyes wide open.
if you follow the steps, we’ve mentioned, you can purchase a rental home and everything will go smoothly. After you get the keys to your new property, remember to change the locks. But not before you enjoy a nice bottle of champagne at closing.
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