Buying and holding rental properties can be an excellent way to create a substantial income without working a traditional job. Before you make the jump, make sure you have a plan to get started.
1. DEVELOP A PLAN
In order to be successful with real estate, you have to know what you want to achieve. About how many rental properties do you need to replace your current income? Will you hire a property manager, or will you manage your properties yourself? Think about the specifics of your real estate journey to ensure you'll succeed.
Additionally, being organized in your endeavors is crucial to keeping track of everything. Look into using a customer relationship management (CRM) software to organize information about your tenants, and be sure to track your rental properties.
2. CREATE YOUR TEAM
Once you've made a plan, start gathering a team for your rental properties. Look into finding a real estate agent, accountant, attorney, private lender, professional property management, cleaning service, and contractor and plumber for property maintenance. By creating a team instead of finding new people for each property, you make the process much more efficient. You also may not need a huge team right away, since you can always grow in the future.
3. LOOK INTO POTENTIAL MARKETS
In order to be successful, you have to be in a good market. Strong markets tend to have job growth, population increase and a high price-to-rent ratio. You can calculate a market's price-to-rent ratio by dividing its median home price by its median annual rent. If the ratio is less than 15, you may have trouble finding and keeping tenants, but if it's more than 20, you'll likely do quite well.
4. CONNECT WITH PRIVATE LENDERS
Using private lenders can be a great alternative to using traditional banking. It's faster, easier and overall better for real estate. You don't have to worry about long wait times that ruin deals, having a low credit score or not being able to afford a down payment. You can simply get started investing from whatever financial situation you're currently in.
5. FIND POSSIBLE PROPERTIES
Now it's time to find your first investment property. Using a real estate agent to close your deal is always wise, but it's often better to find investment properties without them. There are plenty of resources other than the MLS your real estate agent uses, so do some research into potential investment properties.
6. BUILD A PORTFOLIO
Once you have your first investment property, you need to start expanding. To make the most of your first rental property, try reinvesting your cash flow and equity. Using the money you make from renting to grow your real estate business will be hugely beneficial in the long run. Invest in your second property as soon as you can. The more properties you own, the greater your cash flow, and the sooner real estate can become your primary source of income.