If you're interested in investing in real estate and developing a portfolio of income properties, you probably have a lot of questions. Buying properties to rent can be a great long-term investment (as opposed to buying them to flip, which is more about short-term gain). However, there are also a lot of variables to consider. At the end of the day, the best advantage you can have as a new investor is being well-informed and prepared. We looked at some of the most common questions new investors often ask, and brought them to our team of DFW home property management professionals for answers!
1. What Makes a Property a Good Investment?
This is a complicated question, and there are a lot of different ways to answer it.
Look at the physical characteristics of the property (location, number of units, structural condition, age), so you know that the "bones" are sound.
Always have a property inspected before buying, and make sure all the big-ticket items like the roof, foundation, heating, and electrical systems are up to par.
Investing in rental properties is a numbers game: the most straightforward way to determine if a property is a good investment is to add up all the costs, add up all the profits, and compare. If you plan to grow your portfolio with the aid of DFW home property management, factor that into your costs as well. When you work with an exceptional management company, you'll find that their cost is often outweighed by your savings.
When in doubt, use the 1% rule as a general guideline.
The principle behind this rule is that the monthly rent you earn must be at least 1% of the property's total cost for it to be a sound investment.
2. How Do You Finance Your First Investment Property?
The best way to pay for an investment property is cash because it eliminates the need to pay interest on a loan and keeps more money in your pocket. Unfortunately, that isn't an option for most first-time investors—which needs you'll likely need to get approved for a mortgage.
Before buying your first rental property, work on your credit score and overall financial health so you can get the best rate on a loan, and save up as much as possible so you can put at least 20% as a down payment. The more you're able to pay upfront, the less you'll end up paying in interest.
3. Can You Earn Enough Rent to Turn a Profit?
Deciding how much you can charge for rent is one of the most difficult challenges faced by new property owners. Set it too high, and you risk scaring away tenants. Set it too low, and you're taking money out of your own pocket.
If your property has been rented previously, you can see how much it went for, and use that number as a starting point. It's also important to look at similar properties (comps) in the same general area and see how much they rent for. If research into the numbers isn't your forte, you can reach out to a DFW home property management company to obtain a rental analysis of your property. The best management companies will offer this tool for free.
4. How Do You Know If the Location Is Good?
You've heard it all before: "location, location, location!" There may be no single factor that can more easily make or break the success of any investment property.
It's important to take a broad view of the market conditions in the city where you plan on buying property. However, you also need to focus your microscope on the specific neighborhood and street where your investments are located. In Dallas, the difference in rental rates between Knox St. and Henderson Ave. can be as much as $1,500 for the same size of unit!
When you're looking at a city as a whole, look for these key characteristics that show a strong market:
One of the greatest benefits of owning rental properties is that they allow you to generate passive income. However, managing a property yourself takes a lot of work—and that "passive" income starts to feel a lot more active than you expected.
When you work with an expert in DFW home property management, they will handle all the work that goes into managing and maintaining your property.
Marketing and listing your property
Working to keep all the units in your property filled
Collecting the rent
Mediating tenant disputes
Making repairs and taking care of maintenance
Screening prospective renters
Handling evictions—if needed at all.
At RentHub Property Management, we're dedicated to handling all the day-to-day management tasks that keep you're property profitable, so you can focus on making your next investment count!
A great place to get started if you're interested in growing your portfolio further is with our FREE guide to real estate investing! It covers in-depth information about expanding your holdings the right way in the DFW area. Each time you're ready to add a new property to your portfolio, property management makes integration easy!