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How to become a landlord requires not only financial resources but also managerial talent, attention to detail, and, very often, a healthy portion of sweat equity. There will be months when emergency repairs will definitely eat up the potential profits you have made, making the journey of how to become a landlord much more than just collecting rent.
Are you ready to buy your first rental investment? We discuss the essential steps of how to become a landlord, from choosing the location to finding the necessary assistance to buy and manage it.
Find someone to help you buy your rental property investment
You have the money to put down for rental property investment. What to do with them? Your first step is to get informed about purchasing a rental investment and identifying someone who can help you acquire that property. To that end, you can join your local REIA (Real Estate Investment Association) or seek the advice of a property management company that has, as is the case with HomeVault, an investment department, or employ the services of a good real estate agent located in your area. Either of these options should help you find the right person to help you buy that desired property.
Location, location, location
Given all the market fluctuations, it is more important than ever to get the location right when it comes to your next rental investment. This falls into play when you are considering how to become a landlord. Location is essential in determining what is a good rental property. You should start by getting the advice of someone in the industry who knows well the city and the area where you intend to invest. You can start with a basic internet search and proceed with more expert advice. You can ask the advice of experts by posting a question about the potential of that area on one of the industry forums, such as Bigger Pockets, or seek the advice of the investment specialist of a property management company. When we advise our clients where to invest we ask them to take into consideration the following factors:
We look at the public transportation system, the directions where is supposed to develop, where the new stops and stations are planned to be. Rent returns tend to be stable in commuter areas and real estate development usually follows the opening of a new station or stop.
Have a look at the demographics in the interested area. Are any jobs created in that area? What is the average age of people moving into that area? Your rental property investment should be situated in an area where new jobs are created, which will attract young people, of whom some will be interested in renting your property.
- The number of building permits that are pulled in that area
Research the number of new building permits that are pulled in that area. They indicate the direction where the neighborhood is developing. If all these criteria point to a single area, then you have found your ideal location.
What property should I buy?
Let’s be honest, the amount of money you have dictates what property you can purchase. If money is no object then go for a property that fits best the criteria above: it’s in a sought out neighborhood with good transportation links that is likely to attract the ideal demographic for your rental. However, if you are looking for a more modest investment, you can try putting your money and labor into a BRRR investment, or you could choose house hacking (invest into a house that you will share with a tenant).
Depending on the amount of time you are ready to invest in this venture, you should decide to buy either a property that is ready for move-in (that requires no renovations) or a house that requires a lot of work to get fixed. Equally important, depending on the type of renters you are hoping to attract, you should decide whether to rent your property furnished or unfurnished. You can definitely run with an unfurnished property for single-family homes but provide furniture if you plan to rent to students or professionals who travel a lot.
How to determine what is a good rental property?
When you decide on your future rental investment, you will need to consider all the indicators that will help you determine its profitability. We have discussed these indicators in detail in one of our previous blog posts. Check it out to learn more about the NOI (net operating income), the cap rate, the 1% rule, the cash-on-cash (COC), and the internal rate of return (IRR) indicators. Take them into account when you consider the finances for your future real estate investment.
You also need to perform a rental analysis simulation on the property, to find out how well it will do for rental purposes. Take all these factors into consideration before making a decision.
Finally, remember what is the golden rule of how to become a landlord: Before every step, do your research, check the credentials of the people with whom you are going to work, and keep your finger on the pulse of the industry. If you are not ready to dedicate yourself to the management of your new rental property investment, you can hire a professional property manager to do that for you.
You can also consult with your property manager before buying the property. They will have knowledge of the local market and can help you come to the best decision. Plus, property management companies work with dozens of landlords, some of whom may want to sell, therefore they know of a lot of houses that you potentially want to buy. If you would like to learn more about the process of becoming a landlord, don’t hesitate to contact us at firstname.lastname@example.org. Send us a request for a Rental Property Analysis of the property you intend to purchase and we will get back to you with a report that will give you an estimation of the gross income that that property will bring you in the future.