Real estate is a powerful thing. As the saying goes, “they’re not making any more of it” — so perhaps it’s no wonder that, over the long term, the real estate market tends to go up. And it’s certainly true that it’s better to own your home than to rent one. As conventional wisdom points out, paying a mortgage gives you something in return (a valuable asset — your house) beyond the immediate shelter, which is all that rent provides.
So if real estate is valuable and buying is better than renting, then why not buy more than you need? An investment property can be a powerful way to generate passive income while holding onto a real estate property that — with a bit of luck, lots of hard work, and the cooperation of the real estate market — may become worth more than you bought it for!
Sounds good, right? But before you dive in, here are some things that you need to think about.
Making a big investment
Before you can rent out a property, you need to own one. And before you can own one, you need to buy one. But don’t rush this process, because choosing which rental property to buy is perhaps the single most important part of this whole idea.
You’ll want to figure out just how much property you can afford, for starters. Getting mortgage loans will put incredible properties within your reach, but you need to be smart about just how much debt you take out and how it will be structured.
Work with real estate experts and lenders to figure out exactly what makes the most sense for you, and don’t forget to keep a good chunk of your net worth outside of this transaction. Real estate is very valuable, but not very liquid, so make sure that you have an emergency fund and the money that you need to maintain your lifestyle even if you buy a pricey property.
Getting help
Landlords have a wonderful source of passive income, but it won’t be long before you realize that this “passive” income thing isn’t so passive at all. The reality is that you’ll be working hard to keep up with your property and your responsibilities as a landlord. To get everything done, you’ll need some help.
In particular, you’ll need contractors and landlord software. Working with contractors or a property management firm will ensure that you stay one step ahead of potential problems with your property — which is crucial because anything that is missed is only going to become a bigger problem over time.
Landlord software, meanwhile, will be crucial for setting up rental listings and rental applications, and for screening tenants — which brings us to our next section.
Tenants are the key
When you make money off of your rental property, you’re making money that is being paid to you by tenants. Tenants have a lot of power, especially in states with great renters protections codified in law. If a tenant stops paying rent, you’ll have an expensive problem. If a tenant fails to report issues with the property or makes issues worse by damaging fixtures then you’ll end up in a nightmare situation.
That’s why using landlord software to post great listings that attract the best sorts of tenants is so important. Use that same landlord software to set up a rental application and perform background checks on each of your would-be tenants. If you’re careful, you’ll stand a much better chance of picking a worthy tenant who helps your operation run smoothly.
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