Investing in rental properties has always been attractive for real estate investors due to the steady cash flow they can provide as well as creating value from appreciation. Without a doubt, it’s a profitable way of real estate investing; however, there’s a lot to know before you spend cash. For instance, did you know that rental income is treated like ordinary income when it comes to paying taxes? That sounds a little complicated, but it’s not too hard to figure out—especially if you’re using a reliable tax calculator. In this guide, we’re providing some valuable insights into investing in real estate residential rentals.
In a nutshell, rental property is the property that is leased or rented to a tenant over an established period. Rental properties are subdivided into residential (single-family homes, duplexes, triplexes, and quadplexes) and commercial (apartment complexes, storage units, office space, retail space, etc.). You can also rent out a single room now by simply searching for rooms for rent in Atlanta and you’ll get immediate results.
Although managing a rental that’s a couple of minutes from your home seems more convenient, it shouldn’t be the major factor affecting your choice of where to invest. To secure steady income, top real estate agents Carson City NV advise to consider areas that have the following features:
- high demand for rental properties
- steady job growth
- population growth
After you come up with a market to put money into, research it in more detail. Analyze specific neighborhoods to determine which ones are worth investing in. Evaluate the following aspects:
- demand for rentals
- school ratings
- crime rate
- available amenities
- average property value
- average rent
Of course, you’re free to pick any housing type, from a single-family home to an apartment complex; however, it’s best to invest in the property type that’s in high demand. For this, you need to determine whether there’s an oversaturation or undersupply of a specific housing type. It’s easy to find out by analyzing the current inventory listed on the real estate platforms. Plus, you can reach out to a local real estate agent who can provide information on the current situation within the market of your choice. You can find top real estate agents from different U. S. cities at FastExpert, a nationwide network of realtors.
When you have determined the market and the housing type you want to invest in, start searching for properties. The most effective ways to look for investment properties include browsing multiple listing services, partnering with a local real estate agent, or working with a wholesaler.
It’s a no-brainer that you want to secure a positive cash flow when investing in a real estate rental. So before you become an investor, figure out what you’ll earn from renting based on the type of the property and the average rental price for this type in the area. Also, determine all extra expenses such as property insurance, taxes, maintenance, homeowners association fees, and property management (in case you hire a third-party provider).
It goes without saying that you will want a renter who’ll be able to properly maintain the property and pay rent on time. Good news is that there are online services and third-party management organizations that offer screening tenants for a modest fee. If you prefer doing it on your own, keep in mind the following aspects:
- your prospective tenant’s verifiable income should exceed the rental amount
- a current, stable job
- previous landlords can confirm rental history and performance
If the potential tenant doesn’t satisfy your requirements for housing (which should align with the Fair Housing guidelines), you have the right to decline this applicant.
A lease is an agreement between you and your tenant that allocates the responsibilities of each party. While you can use one of the multiple downloadable free leases, it’s a good idea to turn to a real estate attorney to help you with the agreement. You might want your lease agreement to include the following:
- restrictions on altering the property
- the procedure of requesting repairs
- rent due dates
- late fees
Managing the property entails screening new tenants, dealing with leases and move-ins, managing maintenance requests, collecting rent, move-out inspections, and some other aspects. When it comes to property management, you can hire a third-party company or do it yourself.
All in all, with the advantages it can bring, rental property investment is an excellent option if you want to make passive income every single month. However, you need to develop a serious approach to investing in a rental to achieve the desired results.