Rental property investing can be a way to build long term wealth and increase passive income. Like any investment, the key to rental property investing is knowing what you’re getting into. There are several factors that may influence your ability to invest in rentals, so here are a few tips to see if it’s right for you.
There are three starting points to rental property investing:
- Establish a goal plan
- Find financing opportunities
- Research rental markets
1. Establish a Rental Property Goal Plan
A goal plan provides you with a blueprint for what you are looking to accomplish with your investment. Rental property investing should be treated like any other business plan. Because real estate can involve a great deal of money, it’s important to know the numbers and determine what steps you need to take to meet your goals. Furthermore, cultivating an investor mindset is crucial. Having a confident attitude will help produce better results and help you achieve your goals more quickly.
2. Find Financing Opportunities
Securing financing might be the biggest challenge to some investors, but it’s not impossible. It can be intimidating to figure out what type of financing is best for your business plan, but understanding these three things can make the process easier:
- Loan to Value (LTV)
- Make sure you’re a smart investment
- Don’t be afraid of hard money lenders
Loan to Value
Traditional lending is preferred by many investors. If this is the route you’re choosing, make sure you have a down payment. Having a down payment will lower your LTV and save you money on interest and fees.
Make Sure You’re a Smart Investment
Many factors can determine your eligibility for financing, but this is the easiest to overcome. Building your credit score will heavily increase your chances of getting a good loan. Furthermore, a good credit score coupled with a strong business plan can significantly increase your odds of being approved.
Don’t Be Afraid of Hard Money Lenders
Hard money lenders are a great option for those that do not have a large down payment. This is typically a short-term solution for people that are unable to acquire traditional financing. Sitting down with a traditional lender can help you know what kind of requirements you’ll need to meet when you need to refinance.
3. Research Rental Markets
The first thought of many investors is that they want to invest locally. Before doing so, it’s important to consider the conditions of that rental market. Knowing property management costs, rental costs, and the stability of the local economy can provide you with a better understanding of how a rental property in that area will thrive.
Take Action and Get Started
These tips provide a good foundation for rental property investing. Once you have an idea of what you’re looking to accomplish with real estate investing, start building a business plan. Use that business plan to propel you through your due diligence, and then start taking action.