Rental Property Investment Tips

If you are like most people, you have started searching for stable investments that will provide you with a passive income over time. Real estate is less volatile than the stock market, and investment properties tend to have higher returns than other investments. Although no one can guarantee success, these are a few tips others have used to build their rental property investments.

Manage Your Finances Carefully

First, reduce your debt-to-income ratio so that less of your income every month goes to pay your debt. You also need a credit score of at least 620, and the higher your score, the better your loan terms are if you choose debt financing. You also need to build your savings because rental property purchases require down payments of up to 25%. In addition, you need to have up to six months of mortgage, tax and insurance payments in saving. Finally, reduce your credit usage rate to no more than 30%.

Choose the Right Location

Search for potential investments in areas with growing populations or where the city or property owners are revitalizing their homes. Search for neighborhoods that have public transportation access, property taxes, good schools, restaurants, shopping, outdoor activities, a thriving job market and low crime. Review the current build rates and housing prices in the area. Check rental rates as well as sales prices.

Calculate Your Potential Income

Add up all your operating expenses, including your mortgage principal and interest, property management, supplies, homeowners’ association fees, property taxes, insurance, etc. This total should be less than 80% of your rental income. Remember to calculate your monthly maintenance and landscaping. Choose properties with the highest income potential compared to the cost of their expenses. A healthy return for a first year is six percent or more.

You should also calculate your return on investment. You simply subtract your operating costs every year from your annual income. Then, divide the total by your mortgage value.

Consider Partnering With a Seasoned Investor

If you haven’t invested in real estate previously, consider finding a mentor or partner you can work with. This professional should allow you to shadow him or her and should walk you through your first investment. Forming a partnership also reduces your personal financial risk.

You can also join a local investment club where you can share information and tips. You may look for social media groups for property investors. If you need help financing your properties, consider a crowdfunding campaign or financial backer.

Treat your real estate investment strategy as a long-term journey. It may surprise you how quickly your investment properties provide you with a passive income.