The housing industry can be mysterious to a person who has zero experience owning, renting or selling properties. What many new investors discover is that the process of owning a rental is not as scary as it first seems. This in-depth guide to investing in rentals as a complete beginner explores the types of decisions that need to be made.
8 Decisions to Make in Rental Investing
1. Search
2. Cash or Finance
3. Acquire
4. Incorporate or Not
5. Renovate
6. Hire a Manager
7. Ongoing Maintenance
8. Reinvest or Sell
Decision One: Search for an Investment
When not using a company providing a turnkey package, the legwork will be all on an investor to search for homes for sale. Both online and offline sources can be used to find homeowners, brokers or real estate agents selling market ready properties.
Decision Two: Finance or Cash Sale
Someone who gets into the housing industry and finds a property will likely choose to finance. It is rare that someone with zero investing experience will use straight cash. Deciding on how to invest in the property will determine the amount of immediate or future profits received.
Decision Three: Acquire the Property
Not every seller takes care of the closing process for a buyer. It might be necessary to choose a settlement company, title insurance company and real estate attorney to help expedite a sale. If investors pay cash, a closing can be completed faster.
Decision Four: Incorporation or Not
Properties used for investment purposes can open up a range of legalities that the average person might not be prepared against. Some investors prefer LLC or partnership arrangements to protect their personal net worth. Because most investors use investment properties as a business, protecting business and personal assets is a decision not to take lightly.
Decision Five: Property Renovations
A home that is purchased might not always be in the best condition. Some investors choose to take care of small repairs themselves to improve the property before renting it. Other investors choose to hire contractors or a handyman to complete needed repairs. A person who buys a turnkey home will not have to make renovation decisions after property acquisitions.
Decision Six: Hire a Property Manager
Out of state real estate investing is hard to manage when a person cannot be at the property daily in person. Hiring a third party company is a good option to ensure that all collection of rent, tenant problems and other property issues are professionally managed.
Decision Seven: Maintenance
No property will survive rental periods without needing some form of repair. Choosing a reliable partner to conduct ongoing maintenance is a wise decision. Plumbers, contractors, landscaping companies, electricians and other workers can usually be hired by a property management company.
Decision Eight: Reinvest or Sell
The first two years of property ownership can be the most critical. Evaluating profits earned each year could help make the decision whether to reinvest in the property, buy a second home or sell the investment home. All investors will encounter this phase of investing in real estate during their career as property owners.