In order to get ahead, you typically have to do something outside of your 9-5 job—you need to find a way to make your money work for you.
Investing is how many people are able to compound their earnings, winnings or inheritance. And, while some love the thrill and potential of the stock market, others want to choose options that feel more grounded, like investing in a rental property.
Expert broker and entrepreneur Robert Tweed says not all rental properties have the same potential to be great moneymakers. He explains tips for choosing the right property.
How to Find the Perfect Rental Property
Choosing a perfect rental investment property is similar to buying a home, but has some key differences. Here are 8 tips for finding an investment rental, according to Robert Tweed.
Choose the Right Location
In real estate, location is everything. With rentals, you will have the added element of considering proximity to your own residence. If you plan to do the majority of the upkeep, you don’t want to be too far away. If you choose to go with a property management company, then you may not have to worry about distance as much.
Those who want to purchase a vacation rental often choose a place where they will want to vacation often and rent out in-between stays.
Look at Upgrade and Upkeep Costs
More than likely, you won’t want to purchase a home in pristine condition if you are trying to invest. Most will choose a home that needs certain updates within budget so the home value improves even if property values hold steady.
Older houses can be beautiful, but their upkeep is often expensive. Robert Tweed recommends choosing a house that isn’t extremely old and doesn’t have structural damage issues. Ideally, some new flooring and a can of paint are the kinds of upgrades you will do to your home to have it ready for renters.
Consider Bringing on a Manager
When you are determining a budget, you might want to plan for a manager, says Robert Tweed. A property manager or management company can help stay on top of renter needs, upkeep and other tasks of being a landlord. Without a dedicated expert, you run the risk of being overwhelmed or falling behind in your customer service for the tenant or guest.
Stick to a Smart Budget
Don’t get caught up in emotion, Robert Tweed says. It’s easy to get excited or see the potential, but your budget has to be smart and set up for long-term success. Your personal taste on cosmetic issues, like size, layout and design, doesn’t matter at all because you won’t be living in it. Your financial strategy must include all costs and have a realistic view of what you will be able to bring in each month with rent.
Don’t cut it too close because you never know when a tenant will get behind on payments or you won’t have a new guest book during a certain gap time. You don’t want to run into a cash flow issue because you were keeping things tight.
Look for Appreciation Potential
As with any investment, your goal should be for your house to become more valuable and not less valuable. This is where that update/upgrade tip really comes into play.
It’s great if you can find the right property with a simple thing that could increase the value of the home. It might include knocking down a wall, updating the kitchen, replacing windows or adding an attached garage.
Count the Hidden Costs
It isn’t just the cost of the home that you have to be prepared for. Know the taxes, insurance, upkeep and other hidden costs that often aren’t part of the package deal. These are all going to be a factor in your baseline for your investment.
Understand Your Audience
Not all rentals are used for the same reasons! Are you going to have a vacation home-away-from-home, a place to essentially crash at night, a family dwelling or something else? Location is likely to be the biggest factor in determining what audience you attract.
You may be setting up a house for a college student, family, busy professional and more. This will change how important it is to have certain amenities, be near the right schools, consider crime rates and more.
Do Your Research
Things like future development will impact your property and should be taken into consideration. Is the city planning a major development in the area? This can mean a huge hassle with construction if you are located in the wrong place, but it can also mean a huge increase in value after the project is done.
Tweed says you can get information about what has been zoned in the area from the local municipal planning department.