Best tips to follow when buying single family rental property
Investing in single family home rentals. Real estate can be a good investment, but, like all investment decisions, not all are equally wise. Owning an income property can diversify your investment portfolio, and demand for single-family rental homes are skyrocketing. Currently, they comprise over one-third of all rental properties, and continuing trends like student debt load and fewer families pursuing homeownership make single-family homes a valuable investment—with certain caveats. When investing in single-family homes, keep a few best practices in mind to make the most of your investment and maximize your monthly returns.
Single Family Home Rental Investment Tips
1. Define Your Objectives
As with an investment, property ownership can range from relatively low to high risk. Low-risk investment homes are likely to generate steady, reliable, modest income streams. A good example would be buying an expensive home in a good school district. While you may pay more upfront, you will experience less vacancy and volatility. For long-range outcomes, consider a higher risk investment, in which you stand to make potentially higher returns. An example might be a lower-priced home in a developing neighborhood. Once you know what your main objective is for investment, you can begin your search for neighborhoods and homes.
2. Don’t Limit Yourself
One of the biggest mistakes people make when investing in income property is by limiting the search to their own geographic area. In this case, don’t be afraid to expand your horizons. Your budget will play a key role here—you won’t be able to secure a $150,000 home with good returns in places like Seattle or Houston, but you might in moderately sized cities on the east coast or southeastern Pennsylvania.
3. Do Your Research
When looking at the single-family rental market, location is the first and most important consideration. Looking at your objectives (is this a flip or do you want to create a boutique Airbnb?), begin making a list of possible cities for investment based on:
- Job and economic growth
- Relative cost of living
- Crime rate
- Relative tourist attraction (for short term rentals)
4. Use Outside Resources
When buying a rental property, particularly when you’re purchasing one outside your geographic area, utilizing a property management group is essential. Property managers offerseveral benefits—they take over all the legal and technical aspects of leasing, including documentation, maintenance and upkeep, and keeping the property in line with local codes. They can even take care of tenant screening to help ensure that your rental will have quality, long-term tenants. A reliable property management company will make the process of investing in real estate simple, allowing you to enjoy the extra revenue stream without the stress.
5. Enjoy the Process
Reality TV shows don’t exactly paint a fair picture of what the home investment process looks like. On TV, a host swoops in, buys a home, fixes it up in 60 days; and sells it for a substantial profit. This can be an effective strategy if you have years of prior experience and are interested in making a one-time profit.
Real estate investing in single-family homes is about creating long-term commitments to build wealth. As such, don’t balk at short-term fluctuations in the market. Snags can and do occur—a tenant might move out unexpectedly after six months, or you could comfortably have the same tenant for years. Approach the project with a long-term horizon in mind, and you will be far more likely to enjoy the process.
Single family rental property can be a worthwhile investment. At the same time, it requires a thoughtful and deliberate approach. By following these best practices, you can enjoy a steady stream of extra income while building wealth and diversifying your investment portfolio. Comment your views on investing in single family home rentals.