Fiscal foundation: rental 101
Rentals are a thing of the now! Airbnb arbitrages are booming and soon people say it may become oversaturated, but we don’t believe that for a second. The majority of consumers see the potential from rental investments online from experiences of influencers or the ordinary joe just by having a quick chat, but do people really know how lucrative their return could be, or the work needed to have a successful rental property?
It’s important to invest in the right property at the right time, but what exact property would you even think of investing in? Regardless, rentals create some form of cash flow or lucrative return to its owner, property managers, landlord, and or investors. Single family rentals (SFR) can be asset magnets when attracting locals, institutional company investors, and home developers. Regardless of how you obtain an interest in a possible rental investment you can purchase it through different ways, VA loans, Personal loans, bank loans, investors, stocks, REIT, personally handled IRA’s, etc. At any point in time investors can seek out profitable residential properties with little to no risk and maximize returns. Suggesting what property to try for your first or second rental is by far one of the simplest answers to rental questions, it’s one hundred percent residential single family homes, but this doesn’t mean if you present a single family property that it will be the best option for an investor. Loans are also helpful, but we recommend investors so that you have a chance to continue working with them further and grow your future wealth in real estate.
Loans are just as good, yet they keep you focused on payments, due dates, and more which drains your focus from creating a well run rental. Types of rentals can be Luxury homes, penthouses, single family homes, high or low rise apartment buildings, townhouses, row houses, vacation homes, and quaint multi-family duplexes, triplexes, and fourplexes. Any property you choose for your rental property will have its pros and cons, leading from cost of security, ownership taxes, location index pricing, maintenance, appreciation, and depreciation as well. Fixing and flipping these potential properties could benefit as well. Fixing and flipping properties is a great choice of investment if you have the right loan amounts or investor for the deconstruction, reconstruction, appliances, and more. For fixer uppers our suggestion of financing is a portfolio mortgage (several loans from one originator) FHA loans, or a blanket mortgage loan if you plan on renting a multifamily building or home.
Strategic Blueprint
Passing the financial side of it all, lets dig into what it takes to maintain such an investment. We need to think about strategy, and goals. You’ll need to concern yourself about a trustworthy security company to keep the rental safe, and its tenants while thinking about home essentials, needed furniture, and possible value-add on’s. Adding value to the rental could fall into landscape work, paint colors, quality of windows, brick, flooring, modern technology, and appliances. Other ways to add-value would be extending square footage, and locating in above average neighborhoods with great amenities. Regarding strategy you’ll need to focus on what the key point of the home is, yet what will be the best advertisement for the home whether your goal is short term or long term. For an Airbnb arbitrage you won’t need to focus on owning anything, or long term tenants. Make sure that your rental isn’t a self feeding one, meaning you don’t want to receive rent from the tenant and only be able to pay for necessities, or fixed bills onto the property with no profit margin or lucrative return. Keeping up with profit margins requires you to take in-depth research on cap rates, net operating return, possible depreciation, and appreciation, and internal rate of return.To keep your rental in one piece we recommend screening your tenants. Worded quite oddly, but this means that you have requirements for the lessee so if the property is left in dismay you are secure in that fact. Great screening requirements are credit checks, small down payments, security deposits, tenant rental history check, online interviewing, background checks, or a full application for them to sign regarding all of these options. Rental owners should never doubt that something disastrous won’t happen just because a tenant is “nice” or has a good reputation because the costs for most damages in rental homes can range from $500-$7,000+. Circling back to adding value, another much needed option to have for a rental is a property manager if you are not able to keep up with statistical matters all at once. For more info on property management check out our Property management blog for an in depth look.
Lease Essentials
To complete our guide is to let you in on how lease agreements work. This includes presenting a lease agreement with clear statements regarding, Rights, responsibilities, and personal info must be taken into account for a lease agreement between a potential lessee and the lessor (owner, landlord) including but not limited to names of all parties involved/lessee’s, rent pricing, requirements, rules, Your disclosures regarding lead based paint, disclosure of fire alarm system, disclosure of addendum’s, Contact info regarding emails, and numbers, security deposit fees, long term or short term tenancy term agreement, description of property, possible damage costs, Repair policies, maintenance policies, and most importantly state specified details regarding fair housing act information, landlord-tenant laws, and acknowledgment of absence consequences, and default penalties. We understand it’s a lot to take into account for beginners, even those who have already established a rental property, yet you’re not alone in your path to success with Investthereal! Invest in knowledge for success!
