There’s no doubting that the real estate market in most areas of the US right now are hot. Homes aren’t staying on the market long, rents are going up at a constant rate, and offers for above asking price are becoming a norm.
This has investors getting creative in the deals they’re taking and the exit strategies they’re using. Thinking outside the box is how thriving real estate experts are still doing multiple deals a week without any sign of a slowdown.
That being said, not every creative idea is going to be a good one. More importantly, transitioning your personal residence into a rental property (especially if it’s your only rental property) might not be such a good idea for most.
A good point to start out with is your purchase price. Most likely, you didn’t purchase the property at wholesale or anywhere near wholesale value, which is an instant obstacle you’re having to face.
The majority of personal residences are bought at retail and the decision was largely based on emotions as that was the property you planned to stay in for a while and make it a “home”.
Also, most people purchase their home for a variety of factors that are a “must-have” for you, the homeowner, but for renters, they don’t see them as an amenity to pay more for.
Have a lot that’s larger than the neighbors or on a corner lot? For many renters, they see that as more maintenance instead of a luxury.
What about high-end appliances or countertops? These details can truly make a home but for a renter who might only be there a year or two, these are great bonuses but not something they’ll always pay more for.
If your home has amenities that aren’t adding value to the property for renters, your monthly rent may not be sufficient to cover the cost of the mortgage plus all other fees. This includes taxes, insurance, maintenance, etc.
Do your research and see what other similar properties are renting for nearby. Is what they’re getting out of the monthly rent going to cover all your expenses and leave some left over for cash flow?
It’s a Business
When you own a rental property, it’s a business.
You have to treat it like a business. This includes having policies in place and staying consistent with your tenants.
When it comes to finding a tenant, be sure to know what you are and aren’t able to ask on an application. States vary on their laws regarding tenants and the eviction process so you want to make sure you’re not creating any liabilities for yourself. This is where a property manager can be helpful.
It’s also important to consider your reaction to someone damaging the property.
Can you separate yourself emotionally from the house? Is your first instinct to take it personally or do you think about getting workers out to fix it up and get it rental ready again?
Rentals Work in Bulk
Rental properties on average cash flow anywhere between $100-$600/month, depending on how low you were able to purchase it for. This doesn’t sound like much and honestly isn’t that much until you get multiple rental properties in your portfolio.
Having 10+ rental properties allows you a decent amount of cash flow coming in each month and also provides a cushion for vacancy.
This is why rental properties make sense if:
- You have multiple in your portfolio that are tenanted and cash flowing.
- They have proper property management so you aren’t having to deal with toilets, termites, and tenants.
- You keep them long-term and let the passive income flow in.
Look at the Numbers
If you’re considering using your personal home for a rental property, look into every expense that the property might have and add those expenses to the mortgage payment and see what you need to charge monthly for the property to cash flow.
There will be properties you find that just make sense as rentals. Keep going out on appointments and meeting with sellers. Determine the best exit strategy for the property from the numbers and don’t get caught up in risky deals.