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Published On: Wed, Mar 11th, 2020

How to Pick a Great Investment Rental Property

You may think that investing in rental property is something your grandparents might have done for extra cash, but today it’s even a good fit for Millennials. The Millennial generation is increasingly turning to investment property to serve as their first homes as well as a way to see a decent return on their money. 

This trend is especially popular for those who are interested in investing in multiplex properties. A duplex, triplex or fourplex can serve as a great way for young homeowners to live in one unit while renting out the others. This allows them to build equity while getting help in paying the mortgage. This kind of investing while building equity is an ideal setup for the young Millennials who need a great first-time investment opportunity as well as a decent place to live.

In addition, first-time home buyers can be eligible for an FHA loan, which is offered specifically to help people get into their first homes with limited income and/or no credit history to speak of. FHA loans for 2020 only require 3.5% down instead of the 20% usually needed for conventional financing – a great opportunity to use the cash you have and immediately start investing it in your own home.

photo/ tkoch

Find a Great Property

So what makes a great investment rental property? There are a few must-haves in your search, and a few nice-to-haves. 

The first must-have is to understand how investment assets cash-flow. Search out terms such as cash-on-cash return and delve into the factors that investors look at to find profitable properties. And don’t forget to look into the tax laws of rental properties in your state as well – this can also increase the cost of your investment if you aren’t careful.

The second must-have is to research not only the property but also the neighborhood and city itself. Is it in a low-crime area? Are these plenty of schools available? Does the area have the appropriate shopping, parks, and access to main roads and thoroughfares? Is it in a nice well-kept neighborhood or is the property itself run down? Before you invest a dime, make sure that the property itself is worth investing in. If there are major problems beneath the surface that will require a ton of money, you may want to find another opportunity. Things such as brand new roofs, redoing the electrical or plumbing, or finding out a property is in a flood zone will cause the dollar signs to go sky high, so you want to avoid anything that looks like it might drain your bank account.

The third must-have is to create and offer a lease agreement that is not only appropriate and discrimination-free, but also that includes all your requirements as a landlord. Everything you want and don’t want needs to be put into this legal contract. Don’t want to accept pets of any kind, or are turtles and hamsters okay? Specify that in writing. Is it okay for the tenants to vape but not smoke cigarettes in your unit? Put that down. Are there any local or city-wide ordinances or laws that you need to know about before you rent your property out? Every city, community, and even HOA (homeowners’ associations) will have different rules for their tenants, so be sure to check them all out before writing up a lease agreement. This is the only surefire way to cover all your bases when you are trying to fill up those empty properties with good, dependable tenants.

The final must-have is to make sure that you have appropriately screened and found the best tenants for your property. What does this mean? It means using a reputable tenant-screening service to weed out the bad apples at the outset. Paying money to hire a company to run background checks, search for criminal records, look up credit and eviction history, and otherwise reveal any less than stellar information about a potential tenant is money well spent! This one step can alleviate a whole lot of problems by weeding out those applicants who are not financially stable or who might have a negative credit or rental history.

Some nice-to-haves when you are looking at investment properties include: 

  1. Having a large enough cache of funds to pay for regular maintenance items and unforeseen expenses
  2. Offering and maintaining an online portal for tenants to pay their rent, submit maintenance requests, and contact you ASAP if necessary
  3. Deciding if you are going to hire a property management company or manage the property yourself – if you do it yourself, you are basically taking on a second job
  4. Researching and investing in the right kind and amount of property insurance for your investment property.

So whether you are a Boomer or a Millennial or anything in between, it always pays to investigate and find out everything you can about a potential property. Not only will it become a regular source of income for you, but it can also become home sweet home.

Author: Ravi Kumarr Gupta

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