How to Start Investing in Rental Properties

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By Larry Harnar
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Earn extra income with a rental home.

Diversify your investment income by including rental homes in your personal portfolio.

Difficulty: Moderate

Instructions

Things You'll Need:

Communication Skills Home Repair Abilities

Step 1

Are you ready to be a landlord?

The thought of owning a rental house or two appeals to many investors, since it seems like an easy way to generate a steady supplemental income. Many investors like the idea of owning and managing several rentals as their primary retirement activity. However, the downsides of owning investment properties can far outweigh any advantages if everything fails to go just right.

If you want to be a future landlord, it helps to have a few basic skills. Number one, is the ability to deal with people. If you are leasing to others, you will have to deal with them and their problems at some point. Good communication skills and a sense of humor go a long way in this game. Next, do you have basic home repair abilities? If you can't unstop a toilet, change a bulb, or paint, then land lording might not be right for you. Basic home repairs and maintenance between tenants can eat away any profit that you have managed to earn, if you have to pay others to do the work for you.
Step 2

Determine your budget.

The next step is to determine just how much you want to invest in a rental. Some areas of the country allow you to purchase entry level rental properties for less than $40,000 dollars. However, in many areas, a decent home in lease ready condition, will set you back at least $80,000 to $100,000 dollars. Then, figure in the costs of getting it leased and that's a large amount of money to invest, unless you're sure you can make a go of it. It's best for the new investor to start slow and only invest what you can afford to lose, until you've proven your adeptness at investing in the rental market.
Step 3

Locate a property.

With a budget in mind, it's best to seek the advice of a realtor with experience in marketing these types of properties. They tend to know the market for rentals in your area and have access to the tools necessary to make accurate comparisons between homes for sale. It's important to remember to be firm when dealing with these salespeople, since they are looking to make a commission on your purchase. Don't get pressured into buying a rental home that you cannot afford or that won't generate a free cash flow.
Step 4

Assess the property.

Next, a through evaluation of any property should be performed before any decision to purchase is made. The services of a home inspector can be valuable and should be utilized. Major defects can be identified and accounted for before any offer is made. Several resources are available at your library or online on evaluating rentals.
Step 5

Evaluate the rental market.

Finally, it's a good idea to do a little research into the potential of profiting from rentals in your area. Take a look at the local rental section of your newspaper. Are there lots and lots of ads offering homes for rent? Are there only a few ads? Either way, it's prudent to call a couple of the numbers and see just how urgent they are to rent. If every home you call about, has already been rented, that's a good indication of a thriving rental market. You can also look at other factors that effect the supply and demand of housing in your area. These factors include the presence of major colleges, or universities, military bases, major employers, and retirees. Before making any decision about starting to invest in rental properties, use due diligence to identify the potential risks and benefits of investing.

Comments

rkremer said

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on 11/4/2009 I have several rental houses. This venture offers a lot of challenges. Make sure you really want to be a landlord before making the investment!