Jun 04

How to invest in a rental property

Reading Time: 3 mins

Real estate is a powerful thing. Over time, the land beneath our feet becomes more and more valuable. In between, ups and downs occur; but people always need somewhere to live, and the people who own the land tend to profit. That’s why, generally speaking, it’s a better financial move to buy your home than to rent it. Though, of course, it depends on your specific situation. When you own your own space, your monthly mortgage payment goes toward a valuable asset instead of to a landlord who pockets it.

And when you have enough cash saved up, you’ll have the chance to rejoin the rental market — from the other side of the equation. When you acquire a rental property, you’ll be able to generate passive income in the form of rent (which is why these sorts of investments are often called “income properties”). It’s a heck of a deal, provided you pull it off. But choosing the right strategy and making the most of your income property can be tricky. Let’s talk about your options.


Can you afford to own an income property?

The first thing you should do when you consider a rental property is do your research, and the first thing that you research should be your own finances. Can you really afford a rental property?

Remember, this isn’t as simple as knowing that you can afford the down payment. You need to make sure that you have a nice nest egg saved toward retirement, an emergency fund ready to cover the unexpected, and the cash and income that you need to keep living comfortably. You shouldn’t be putting all of your eggs in one basket; as powerful as income properties are, they are not risk-free and are highly illiquid.


Picking your property and getting the right deal

Next, you need to consider your purchase options. Do lots of research, because this isn’t something that you want to make a mistake on. Consider the location of any potential rental property purchase, and check out comparable nearby stock. Think about the long-term destiny of the region and the broader real estate and financial markets.

Then, make sure that you get the right deal. Work with experts to make sure that every step of the purchase process, including home inspections, is done right. Get the right rate on your home loan. You’ll most likely go with a fixed rate home loan, but variable rate home loans have advantages in certain situations, so be sure to do your research and keep your financial house in order.


Managing your rental property

Once you have a rental property in your possession, you’ll have a powerful tool for generating passive income and building wealth over time. But don’t assume that this property will run itself. You need to be careful how you manage your space.

You’ll have help, of course. Be sure to use powerful online landlord software options to do things such as set up your rental listing and handle tenant background checks. Good landlord software will also make it a breeze to set up a rental application — and, in many cases, you’ll find that you’re able to do so for free. You’ll want to be careful here, because getting the wrong tenant can be a financial disaster for you; non-payment and destruction of your property can be in your future if you let the wrong person move in.

Be sure to invest in preventive maintenance and repairs, too. Being proactive about upkeep on your property will benefit you in the long run.

Owning a rental property isn’t for everyone. But if you can afford it and you use the right tools to support your own hard work, you can build wealth and improve your future using the power of real estate.



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