3 Smart Ways to Invest in Real Estate By Becoming A Landlord
From midnight plumbing emergencies to disputes between tenants, there are many headaches that come with the territory of being a landlord. And yet many people consider these inconveniences very minor when compared to the advantages of this form of real estate investment. Being a landlord is an incredibly successful business model because your rental income pays the mortgage, and the property itself becomes more and more valuable over time. It’s a truly excellent investment that will pay off, as long as you do it the right way. Read on for tips on how to get the most out of being a landlord.
Reduce Risk by Having Multiple Tenants
While the landlord business model is very profitable, your financial well-being depends on receiving a stable rental income. You will be in a tricky situation if someone moves out and it takes time to find a replacement, or a current tenant becomes unemployed and gets behind on payments. Every month in which you’re not getting this income means you’re losing money. In the worst case scenario, you may have difficulty paying your mortgage and actually lose the property. One way of reducing risk is by investing in multifamily real estate so that your rental income can be spread out over multiple tenants. If one of your units is temporarily empty or not producing, the other ones can continue providing you with the mortgage payment.
Of course, a multifamily property will also come with more responsibilities. What many landlords do is have one of their tenants with relevant skills take on the role of “handyman” in exchange for reduced rent. This person deals with small problems like a clogged sink and the landlord will only have to step in when more serious problems arise. The magic of being a landlord is that it’s possible to get something for nothing, or for very little, in the sense that the property pays for itself. Your rental income should not only cover the mortgage but also the fees for real estate agents that find your tenants and the cost for any necessary maintenance or repairs. If you can manage your property well, being a landlord of multiple tenants can deliver serious profits.
Buy In An Affordable Area That Will Eventually Gentrify
When you’re choosing where to buy your investment property, do your research and try to figure out which areas will be improving in the next 10 to 15 years. Gentrification is a gradual process in which an economically depressed neighborhood becomes more and more desirable over time. If you can enter the market at the right time, you will benefit from buying at a bargain price and then watch your property’s value skyrocket as the neighborhood changes. The rental income you receive in the beginning might not cover much more than the mortgage since rents in this neighborhood are likely to still be low. However, this will improve over time. The goal will be to hold the property for the next 10 years, collect increasingly higher rents, and then sell at a major profit.
You can often predict affordable areas that will gentrify on the basis of location. Proximity to public transportation or a university, as well as to other neighborhoods that have already improved, are good signs people will eventually want to live there.
Increase Your Rental Income With Strategic Renovations
To improve upon what’s already a great business model, buy a property that’s undervalued because it needs basic repairs. As long as you have the funds to make these repairs, there are many advantages to buying a structurally-sound fixer-upper in a decent neighborhood. You’re in a position to invest a relatively small amount of money for a very large increase in the value of your property. As long we’re not talking about big-ticket items like needing to replace the roof, a strategic renovation that will attract higher-paying tenants is well worth the investment. Improving the curb appeal, replacing the kitchen cabinetry and adding a fresh coat of paint can make a big difference without a major cost. The renovations will allow you to charge higher rents, as well as increase your profits when the time comes to sell.
Are you hooked and ready to make your real estate investing dreams come true? Then read about buying your first investment property and begin your journey towards being a landlord.
