October 16, 2020
Are you thinking about starting your real estate investing career? Are you debating what kind of investments you want to make? While flipping homes may be the most popular form of real estate investing due to the potential immediate payoffs, rental properties provide a continual cash flow that is attractive when paired with a portfolio of several different properties.
However, the benefits of owning a rental property aren’t without their cautions. In this post, we’ll share the main features to consider when purchasing a rental property, what to avoid, and difficulties you may face.
Are You Ready to Invest in a Rental Property?
Before we begin, we’ll take a look at why you should seriously consider owning a rental property.
1. The property has physically measurable value
There are several ways to invest your money—stock markets, savings accounts, etc. However, when it comes to a real, assessable value that isn’t dependent on an institution to determine, real estate is the most stable. It isn’t dependent on another institution to determine worth. The tangible value of a house is based in real world items and structures, and that makes your investment much more sound.
2. You can use loans and other forms of financing to grow your own income
Another huge benefit for real estate investors is the readily available streams of financing. Whereas other forms of investing require you to put forward your funds, real estate investors can seek funding through different types of lenders. See how Bay Mountain Capital can assist you in acquiring your rental loan here.
These lenders will still look for you to invest a little of your own money so that you have some skin in the game—however, where you may put money down on a loan, you reap the values of the entire value of the house, not just your own down payment.
Additionally, over time, the rental property will appreciate in value, and you’ll make gains past your original amount invested.
3. The Real Estate Market is HOT
Everyone has seen the major television networks that revolve around homes and diy. Home improvement has become a major industry, and more and more people have their eyes set on real estate investment.
Because of this, several metros and towns across the United States have seen a boom in their real estate markets. Realtor.com has highlighted the top zip codes in real estate for 2020, and each zip code has had at least 13 active home listings each month. These zip codes were evaluated based on how long houses stayed on the market as well as how many views each property received. They further limited contenders to one zip code per metropolitan area.
While this may only cover 50 zip codes, the information translates to different areas across the nation—your city may very well be in its own housing boom. If not, chances are that a town or cities close-by is.
With an increase of demand in properties, prices in these areas increase. Home buying becomes more competitive and more people will seek out rentals as opposed to purchasing a home.
Shopping for a Rental Property
So far, we’ve covered some benefits of owning rental properties—now it’s time to discuss what you should watch out for when shopping for a rental property.
1. Scout the neighborhood
You may find the perfect house for rental—few to no repairs needed, price is at a sweet spot, and the market is in high demand. However, if the neighborhood itself is not attractive to potential tenants, you won’t be able to make your returns in these highly competitive areas.
With harder to rent properties, some landlords will resort to lowering their requirements of potential tenants. This may lead to problems with your potential tenants
Also, if you’re in a sub-prime neighborhood, your overall property value may never rise.
2. Inspect the Property
We’ve covered possible issues that may be red flags for Fix and Flip properties in our previous blogs—electrical problems, foundation issues, and plumbing repairs.
Whenever you’re deciding on the feasibility of a rental property, the same principles apply. It’s always good practice to have a professional inspect the property prior to making your purchase.
Being prepared to address any and all property issues is essential, and required by law, as a landlord. Avoiding large ticket items will save you from headaches later down the line when you have your lease agreements in place.
3. Read up on the Landlord Tenant Laws in your state
Before you start to take applications for tenants, make sure you read up on the laws that will apply to both you and those who will inhabit your rental property. These laws very by state, and it is paramount that you as a landlord are knowledgeable on what is and isn’t possible.
The better the relationship you have with your tenants, the more smoothly and efficiently your rental portfolio will run. Make sure you fulfill your landlord responsibilities, and hold your residents to their duties as well. Have a lawyer who is familiar with Landlord Tenant Laws help you with drafting your lease agreements. In the end, you’ll be in the best possible place as a landlord.
About Bay Mountain Capital:
Bay Mountain Capital has been in business for more than a decade, closing approximately 2,000 loans. We specialize in financing all types of residential and commercial property investments throughout Texas and Georgia. Using common sense and value-added approach, we strive to incorporate these principles into our underwriting and closing processes.
As a direct lender, Bay Mountain Capital can close a loan within one day after receiving a complete file and clear title. The process generally takes two weeks for a residential loan but can be accelerated where circumstances require it.
We are primarily an asset-based lender, which means that qualification requirements are limited. Our rates and fees are among the lowest in the industry.