Investing in real estate, particularly rental properties, is one of the best decisions you can make. However, real estate is a tough industry to enter which is why it is important to have a sound rental property investment strategy.
This will ensure the maximization of your rental property’s profitability while minimizing your losses as an investor. Nevertheless, although this is a must, the extensive range of choices and the fierce competition can be daunting and overwhelming.
With that said, in this article, you will find different rental property investment strategies as well as other relevant information. These include information such as what is an investment strategy for rental property and its benefits for investors.
What is an investment strategy for rental property?
A rental property investment strategy is what helps investors make sound decisions when it comes to their investments. However, this type of investment strategy is specifically designed for rental properties.
Nevertheless, they are still like regular investment strategies. They are based on the investor’s specific goals and future needs as well as just how high a risk they can tolerate.
Having an investment strategy for your rental properties can help you maximize what these properties have to offer while lowering the potential risk for losses by doing so. However, this means that these strategies should be in line with your specific goals as an investor.
Moreover, these strategies are also a form of rental property management. They will allow you to create a framework that will help you achieve your goals as a rental property investor.
Tips and Strategies for Rental Property Investments
Now that you know what a rental property investment strategy is, you can now dive into these rental property investment strategies:
Do your research
Before anything, you need to ensure that you are creating rentalpropertymanagementstrategies that are based on trustworthy data. While experience is often the best teacher and you will likely undergo various instances of trial and error, you can minimize your investment’s potential losses by doing ample research.
Make use of what is available to you – from books to online courses, you have an extensive range of resources at your disposal. Aside from this, you can also consult with other rental property investors who are more experienced in the field.
They can give you valuable insight into the industry’s actual state. Thereby, allowing you to form a sounder rental property investment strategy and optimize your rental property management.
Location is key.
If you want to maximize your investment’s profitability, you need to ensure that you’re investing in a rental property that’s situated in the right neighborhood. Investing in a rental property located in a suitable neighborhood can increase the likelihood of income generation from your investment.
However, this doesn’t mean you only need to consider the real estate market’s current state when formulating a rental property investment strategy. You also need to consider the feasibility of your chosen location. This includes considering whether it will remain a viable real estate market or not.
With that said, you need to choose up-and-coming real estate markets. You can do so by checking a neighborhood’s current home sales, rental rates, as well as its overall population growth. After all, choosing the right neighborhood is vital to your investment’s success.
Consider the 10 to 20% rule.
Another rental property investment strategy you can employ is to buy your rental property below the market price. Specifically, it should be below by around 10 to 20% of the average market price.
Doing so provides you with a bit of wiggle room in case you need to sell your property off. The leftover 10 to 20% allows you some room with the offer. This is especially true if you’re selling your property in a rush or during emergencies. It also provides you with excellent returns on your initial investment.
Make room for unforeseen costs.
Aside from the initial purchase price, there are other costs you need to consider with rental properties. Upkeep and maintenance costs are part of the deal. However, aside from these, there can be unexpected events that require you to shell out more than you initially planned.
For example, natural disasters can inflict damage on your rental property, requiring you to have it fixed immediately. Damaged roofs, burst pipes, and other potential events can eat into your generated income.
As such, it is a good practice to set aside at least 20 to 30% of your generated income each month. This will serve as a sort of emergency fund in case such events happen. That way, you will not have to dip into your personal finances to pay for repairs and other unforeseen costs.
Protect your investment with a landlord’s insurance.
Just because you are not living in the property does not mean you should overlook getting insurance for it. By getting both a landlord’s insurance and a homeowner’s insurance, you can protect your investment and maximize its returns.
A landlord’s insurance generally covers investment property damages as well as protect you from lost rental income and liability. The latter is in case your tenant/s or their visitors suffer from an injury due to issues with the property.
If you want to save on costs, consider a provider who can offer a bundled plan for both insurance types.
Be cautious of high-interest rates.
Chances are, you are probably borrowing money to finance this venture. While it is relatively affordable to borrow money nowadays, you need to consider several things. For example, investment property interest rates are generally higher than traditional mortgages.
Therefore, opting to borrow to finance your endeavor means considering the interest rates carefully. Make sure that the interest rate is not too high that it is eating into your monthly rental income. Moreover, ensure that you are not incurring losses by availing of that loan.
Final Thoughts
Investing in rental property is a lucrative venture, especially since real estate’s value only increases with time. However, it is important to have a wise rental property investment strategy. This will help you be wise with your investment and ensure that you do not suffer losses.
Such strategies will also allow you to maximize the generated rental income, allowing you to further expand your investment portfolio with other rental properties.