Investing in real estate and starting a rental property business attracts people looking for long-term equity in real estate with someone else paying the mortgage. Owning a property is the first step to being a rental property business owner. As attractive as this business is, the amount of money needed, the potential liabilities and the legal responsibilities are often overwhelming. Structure your early deals in a way to mitigate risk while getting more experience.
Leverage Your Existing Home for Financing
f you are looking for real estate to invest in, think about leveraging your own home first. You can do this in one of two ways: Use the equity in your home as a down payment for a new property, or simply rent out your existing home while you move into a new one. If you plan on staying in your home but want to tap the equity, you have a better chance of getting approved for a home equity loan compared to an investment property loan. Until you have rental experience, banks might give you less-favorable loan options on investments. If you plan on moving and want to rent out your home, you already have insight into the condition of the home and the desirability of the neighborhood. This makes it easier to rent.
Develop Financing Options and Business Relationships
Over time, develop other financing options and business relationships so you can build a larger portfolio. This might start with an equity line on an existing rental and potentially include private investors.
Join a Real Estate Investment Club
Just about every city has at least one real estate investment club. Join and meet people who are already running successful rental businesses. You might be able to partner with some, splitting costs and risks. Either way, you will gain valuable knowledge and learn from others experiences by being part of the club. Most clubs also network property listings and have investor members seeking project partners.
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Understand Rehab and Maintenance
Depending on the condition of the home when you buy it, you might need to fix it up. Homes purchased through foreclosure or tax deed auctions are often distressed and must be fixed before you can rent them. Even homes in good condition have things break. If you arent handy, develop relationships with good contractors and repair people. These are resources you cant live without, because you need to trust that people you send to your property will do the job well and not antagonize your renters.
Learn How to Rent
There are a vast majority of ways to rent a property. Some landlords specialize in underprivileged neighborhoods that get approved for Section 8 housing. Others rent homes and apartments to students in college towns. You might not want to deal with tenants who struggle financially or move annually and would prefer catering to urban families with dual incomes. Thats fine, although there are never guarantees. Focus on rental properties in an area that attracts your ideal client.
Set Up Screening Systems
Set up a system for applications, credit checks and background screenings. Develop a rental agreement or find an online template resource. Talk to the local housing authority to understand the state laws and regulations. Landlords have obligations, as do tenants. Learn these to understand your rights, including how to evict someone legally if you need to.
Source : smallbusiness