You want to get into rental properties.
You want to start building your portfolio of passive income.
Except, you’ve never had a rental property before.
Rental properties are great for building passive income that will cash flow for years to come. It’s not a huge amount per house each month but it’s steady (as long as it’s tenanted) and long-term.
Ideally, most real estate investors want a handful or more rental properties that are truly passive. You want a property with a property manager who can handle the day-to-day operations so that for you, it’s on auto-pilot and truly a passive investment.
Once you get multiple rental properties in your portfolio, the monthly cash flow really starts adding up.
But, what makes a property a good rental property?
There’s a number of factors that make a rental property more desirable and easier to find and keep a tenant.
Structurally, you don’t want anything too big or too small.
A 3 or 4 bedroom with 2 to 3 baths allows you to hit a large group of potential renters.
If you go too big, many renters won’t need that amount of square footage and won’t be able to afford the rent.
If you go too small, you risk losing potential renters with children who need their own space.
In addition to a “medium” sized house, you want to consider if you’ll be able to get the appropriate amount of rent out of it compared to the value of the property.
As a general rule of thumb, your property should rent for 1% (or higher) of the value of the property. So, if it’s a $100k house, you should expect for it to rent around $1,000/month.
If you were able to acquire the property at a low cost and you’re getting more than 1%, then you might have hit a home run!
If you aren’t getting that, you need to reevaluate the deal to see if it makes sense.
Make sure the amount you’re requesting for rent is comparable to other properties in the areas. You can do this by searching MLS, Zillow, or Craigslist for rental properties in the areas and see what they’re renting for.
Location is also important for renters who are planning on being there for an extended period of time.
Being in a good school district with a low crime rate is always helpful. In addition, if the property isn’t too far away from local jobs, grocery stores, entertainment, etc. that’s also a plus.
Tenants want to feel safe and want the convenience of being close to well, everything!
In general, you want a “clean” property, meaning it doesn’t need many repairs and doesn’t have any “big 5” issues (roof, HVAC, plumbing, electrical, and foundations). Big repairs, if not properly budgeted for, can eat away at your potential profit and leave you at a loss.
To sum it all up, find a property that isn’t too big for a couple but has enough room for if they have a small family. Make sure it’s in a desirable location and do your research to determine the cost of rent.
Once you get one rental property in your portfolio, it will become more routine when you acquire more rentals and build up your rental portfolio.
If you’re looking for rental properties that are already tenanted and have property management in place, check out PassiveRental.com or click HERE to learn more about building your rental portfolio, passively.