Where to Start?

If you have yet to take the plunge into real estate investing, get ready for a wild ride. It’s a fast-paced industry with many moving parts that change often. But with the right mindset, a little research, and a few smart decisions, you can create for yourself a passive income stream that you can live off of today or save for retirement.

What Is an Investment Property?

An investment property is quite simply one that generates an income or profit. This could be a monthly rental, vacation home, or foreclosure property that you buy low, repair, and sell for more than you put into it. Regardless of the type of property, you think you might want, the first place to start is with your budget. Know how much you can spend and then take a look at the local listing and sales prices, which OutFactors says may be the same or different, depending on the local real estate climate.

Features of a Marketable Rental

You’ve heard this about real estate before: location, location, location. The first indicator of whether or not a rental will be profitable among long-term tenants or vacationers is where it’s located. Investopedia explains that properties in an area with low occupancy rates historically may be difficult to keep filled.

Once you have identified your target area, you’ll then need to determine who you want to rent your property to and then ensure that it has the features they want. One example is purchasing a small family home in a neighborhood active with children. In this scenario, you’ll likely want to focus on safety, cleanliness, and outdoor space.

The safety of your property will be a huge draw to families. If it does not have a fence, consider spending $4,500 to have one installed. Look through the neighborhood to ensure that the materials and fence size matches what’s considered normal in the area. You’ll then want to find the ‘best fence company near me‘ and evaluate companies online. Regardless of the contractor you choose, you want to make sure they are licensed and have written in their paperwork that their workers will be aware of easements, underground utilities, and any property lines.

If you’ve chosen a vacation property instead of one with long-term renters, cleanliness may be second on the list past location. California-based Nancy’s Cleaning Services estimates that move-out cleaning, which you should do before listing your property as a vacation rental, will cost anywhere from $130 to $450. You’ll also want to hire a cleaning service to clean and sanitize after each rental is over. You can typically add this fee to your nightly rental rates or have it listed as a separate line item.

As for outdoor spaces, these should be fun and functional, no matter what type of rental you have. A deck or patio, a fire pit, outdoor lighting, and a safe place for kids to play are crucial. The outdoors of your rental should also be clean, tidy, and full of curb appeal.

Pricing for Profit

As you can see, the price of owning a rental adds up quickly. This means you will need to pay extra attention to pricing so that you will turn a profit each month. iProperty Management explains that you can usually charge somewhere in the neighborhood of one percent of the property’s value as a contract lease fee. So if the property is valued at $300,000, around $3,000 per month may be considered reasonable.

For a nightly/vacation home, you’ll want to do your research to see what similar properties are renting for. Pay close attention to these properties’ availability calendars. Homes that have just a few nights rented here and there may be priced too high while those that have zero availability for the foreseeable future might be priced too low.

When you’ve chosen to buy, fix, then sell, aim for a profit margin of between 10% and 20% of the property’s value once repairs have been completed. For example, if your property is valued at $150,000 after repairs are made, you should ideally walk away with $15,000 to $30,000. This means you’ll spend a total of no more than $135,000 on the property including the initial purchase, all fees, materials, and labor.

Making your mark in the world of real estate isn’t always easy, and you’ll want to be prepared to make many mistakes early in your career. Fortunately, with time and experience, you will quickly learn what works, what doesn’t, and how to enjoy a (mostly) passive income. Remember, it takes money to make money in real estate. Don’t be afraid to spend so that you can make money and grow.