Part-Time Rental Property Investing
By JD Esajian on April 5, 2019
There are many ways to make money in real estate. You don’t need to be actively involved in real estate to know that flips and rehabs are the current craze. While there is tremendous money to be made with these, they are not for everyone. There are investors who lack the time and expertise to dive into the world of flipping. Some investors would rather retain their full-time job and invest on a part time basis. Instead of flips and rehabs they want the security of a rental property. Rental properties require far less micromanagement and can produce gains for several years down the road. All the while you have the security of a full-time job and the comfort of a steady paycheck, benefits and insurance coverage. Here are five tips to start part time investing with rental properties.
- Run The Numbers: Not every property makes a great rental property. There are a handful of specific property features to look for when thinking about a rental. For starters, the property must be in a desirable rental location. If you cannot find tenants, nothing else makes a difference. You may get a steal on a great property in the middle of nowhere, but it doesn’t translate to a great rental. Rental properties are all about the numbers. Obviously, the purchase price and mortgage payment have the biggest impact, but they are far from the only item that matters. You need to account for any utilities you plan on covering, maintenance, snow removal, yard care, marketing and more. You should start by looking for a monthly cash flow number that works for you and go backwards from there. If the cash flow isn’t acceptable and the numbers just don’t work, you need to walk away.
- Choose Good Markets: It cannot be stressed enough just how important the right market is. There are many ways to have success with rental properties. One strategy is buying properties in low income markets and building from there. This works if you can allocate a property manager or have a team you can reach out to when you need them. Most part time investors don’t have these resources at their disposal and struggle in these situations. You are better off starting out in more desirable locations that you know won’t have a hard time finding tenants. This alone doesn’t guarantee you won’t have any issues, but better locations reduce your risk for vacancies. You will hear this many times, but filling vacancies is the name of the rental property game. If your property can’t find tenants nothing else matters and everything else, you do will be impacted. Always start by running the numbers first and looking for the best possible market second.
- Know Who You Are Renting To: The single most important thing any landlord can do is find good tenants. This sounds obvious, but it is remarkable how many landlords are quick and lazy with their screening. This is even more important for part time landlords. You don’t want to have to worry about evictions, property damage and phone calls at all hours of the night. You need to develop, and follow, a system for screening each and every tenant. There are times when this will become tiresome, boring and time consuming. However, if you are lazy with your due diligence you have nobody to blame but yourself if a bad tenant falls through the cracks. Something as simple as an application, credit check and a list of references can give you a good idea of exactly who you are renting to. If a prospective tenant balks at providing this information, it is a good indicator that they may be trying to hide something. You will never know everything about a tenant but following up on an application gives you a good idea.
- Keep A Good Tenant Forever: Leasing to tenants doesn’t have to be a month to month or year to year thing. Believe it or not, most tenants would rather stay in the same place for as long as possible. If they find a good spot they would much prefer to stay there until they must move. They may have a hard time telling you this, so it is up to you to ask. Once you are inside of 90 days of lease end you should ask them if they would be interested in staying. Even if you could make $50 more a month with a new tenant you can’t put a price tag on a good tenant. Chasing every dollar from the property will leave you with a tenant where you have to hold your breath they pay every month. If you have a truly good tenant keep them for as long as possible.
- Be Prepared To Spend Money: Rental properties should be treated like an asset. With any asset it is important to take care of it and help it generate value. Your rental property needs to be updated and improved on a seasonal basis. You need do preventative maintenance on the furnace, water heater, oil tank and HVAC. You can expect the dishwasher, refrigerator and washer/dryer to be replaced every few years. The property should be professionally cleaned at least twice a year and the interior painted frequently. The longer you hold off on these items the worse they become and the less appealing your rental will be.
There is nothing wrong with buying one good rental property a year. You don’t need to be an active investor to make money in real estate. You can hold on to your full-time job and invest when you see fit.