Before deciding to enter the rental property market, you might have some hesitation about whether you’re ready to take the plunge. From choosing the right location to finding out how to finance their investments, as a potential investor, you have much to think about. Despite the challenge of selecting investment properties, first-time investors shouldn’t shy away from the rental market if they have a solid plan in place and expert guidance about how to maximize their investments.
Here are five questions every first-time rental property investor has:
1. What are good locations for investment properties?
You hear it from both real estate agents and first-time homebuyers that location is one of the most important aspects of purchasing a property. When determining where to begin buying to build up your real estate investment portfolio, you might want to start in places that have affordable home prices. For example, Memphis and Nashville investment properties have cheaper real estate prices than Los Angeles or Manhattan.
Another big worry for investors is the thought of remotely investing in a property. As an out-of-state investor, you should account for maintenance and whether you need to hire a property manager to take care of your rental homes when you are not around.
2. What should I use to fund my investment?
While funding an investment property is a big decision, remember that you have a variety of options for funding. Even though some investors choose to buy properties with cash, you can fund your investments with your retirement savings, including your Individual Retirement Account (IRA). Another option for first-time investors is to apply for financing from an investment bank. You can also fund your properties using the investor loans available from Fannie Mae and Freddie Mac.
3. How will investment properties add to my retirement income?
By putting your IRA toward purchasing a rental property, you can create another source of income during your retirement. A rental property, when it is well-maintained and has great tenants, can last a lifetime, which is important when retirees need their income to last. Investing in an investment property can be an effective way to diversify your streams of income before and during retirement to help you live a comfortable life.
4. What kinds of properties should I buy?
Even when you already own a home, choosing properties in the rental market is different than buying a home for yourself. In choosing what kind of rental to buy, you have the options of single-family, multifamily and commercial properties. While demand for multifamily properties are picking up steam, single-family homes dominate the rental market and there has been a rise in demand for these types of rentals from families hoping to save money before buying a home.
5. How do I know I can trust an investment firm?
While there are obvious red flags that scream “get rich quick scheme” that you should recognize in any business, it might be harder to find firms you know you can trust to help you fund your investment. To locate the right investment firm for you, determine whether the contenders are knowledgeable about the areas you are looking to buy homes in and that they can answer your questions. When firms are more interested in helping you than themselves, you know you’ve found a good partner in real estate investing.