If you’ve got money to invest but don’t trust the stock market, real estate can be a lucrative way to build equity and income over time. One of the big challenges in real estate is the down payment requirement. However, with careful planning and the right connections, you can overcome this barrier.
Hire a Pro to Do Your Taxes
Tax breaks for landlords can be lucrative, but they change frequently. If you are planning to buy and hold property in the rental market, you’ll have your hands full with upkeep and monitoring the market for new opportunities.
Rather than trying to track new tax breaks and risking taking the wrong deduction or missing out on a great break, find a small business accountant or a sole practitioner who can help you protect your investment and qualify for all the breaks you’re due. Small business owners understand the needs of other small business owners and maybe a bit more aggressive.
Find a Rental Manager
Rental managers can help you
- Monitor the condition of the property, especially if you plan to travel on your rental income
- Run background and credit checks
- Market your property
- Collect rents
- Manage deposits, and
- Make sure you get paid
If you plan to build a rental business while working more than a part-time job, the time commitment of marketing your property, choosing renters, collecting applications and keeping properties in good shape will either take all of your free time or be done poorly. Hire a rental manager to help you get steady renters in your properties.
Focus on Long Stays
Getting renters who stay put will do more for your bottom line than any other rental plan. Evictions are frustrating and can lead to rampant destruction that won’t be covered by a deposit. You’ll also have to chase destructive renters and garnish their wages, which can cost you a lot in legal fees and gain you little in compensation. Even good renters that move out will cut into your bottom line. Marketing and updating an empty house are expensive; keeping a good renter can be much less costly.
Make sure your renters have all the data they need. Your rental manager should have a call-in service where non-emergency complaints can be tracked as well as a paging service for emergency requests. You will also want to schedule regular inspections and check the property twice a year to make absolutely certain that things are being well cared for.
Be aware that you may need to buy in higher-end areas to build a stronger client base. Financially fragile renters are more likely to move frequently; renters with more to spend may have more demands, but they will stay put.
Get an Education
You don’t need to spend a great deal on property buying classes, but it’s a good idea to join a local real estate investment group so you can find out about local restrictions, get a heads-up about quirks in your state laws, and make contacts with local contractors.
If you want to focus on short-term vacation rentals, consider taking an Airbnb course with a focus on your area and seasonal offers you could consider. For those interested in properties who are also interested in design and decorating, you could find short term rentals an much more interesting than renting out empty space.
Join an Investment Group
If you have cash to invest but no interest in getting too close to the property, consider investing in a Real Estate Investment Trust. As a member of such a group, you’d need to put up cash and would be paid out of a rental pool. This pool will also need to support renovations and repairs fund, so there may be times when it doesn’t pay out as much as you expect. However, large REIT bonds do pay higher dividends than standard savings and should beat inflation over the long term.
No matter your ultimate real estate goals, having great credit will greatly reduce your headaches. Do your best to stay liquid, rather than coming up with large down payments. Be ready to pay a bit more in interest to keep cash in the bank.