How to get started in real estate investing
Becoming a successful landlord will depend on your understanding of how to get started in real estate
In theory, it’s easy money. Buy a property, rent it out, pay for the mortgage and maintenance with the rent. Eventually, the mortgage is paid, and the rent turns to profit, just for owning the property. Expand the idea from there. But, like anything that sounds too good to be true, learning how to get started in real estate investing is more complicated than it seems.
Start with a cheap property and you will watch required upgrades and maintenance eat away at your profit margin. Choose a higher quality house and you’ll struggle to find renters who can afford the rates you’ll need to charge. And wait until you have to go to court to fight for permission to evict tenants who stopped paying half a year ago!
What are the advantages and disadvantages of being a landlord?
Instead of thinking of it as becoming a landlord, you should think of it as starting a real estate investing business. As is the case with any business, it will have advantages and disadvantages.
The advantages of running a real estate investment business include:
- Passive income: Eventually, you will have money coming to you simply for owning your properties.
- Retirement plan: Because this plan generates passive income, you can retire on it!
- Equity: Ownership is valuable, and as the value of the property you own increases, so does your equity. This will allow you to expand your operations to include more properties.
- Housing: As a real estate investor, you will be providing housing to your community.
The disadvantages of running a real estate investment business include:
- Maintenance: Even though each property is an investment, they still require a lot of upkeep to hold their value.
- Inflexible: Properties are also fixed investments that can’t be easily liquidated, meaning that your financial worth is difficult to access.
- Tenants: This kind of explains itself.
- Time demands: Unfortunately, instead of being free, easy money, staying on top of all of the details will keep you busy. Get ready to spend a lot of your time negotiating with your tenants and contractors!
If this sounds like the kind of business for you, it’s time to talk about how to get started in real estate investing
How to start a real estate investment business
Clearly, real estate investing is about more than simply owning rental property. If you want to do this right, the factors you should be considering include:
- Finding the right property: Make sure you know what you’re getting into when you buy the property to rent. A large building can house multiple units, which means more rental payments, but this comes with more repairs and maintenance. Pay attention to the location of the property, neighborhood housing prices, local taxes, and insurance rates.
- Knowing your legal rights and responsibilities: You will need to become familiar with the Federal and State laws regarding landlord tenant relations. These can get tense and lead to conflict, and a legal misstep can result in the loss of a court case if the situation escalates to legal action. Know the laws, and don’t let yourself make a rookie mistake.
- Drafting your lease: This is another important one. Make sure the terms are clear and easy for tenants to follow, but that they are airtight and protect your property and your rights. This is one to have a residential eviction attorney’s help with; you don’t want to find out in court that your lease doesn’t mean what you intended.
- Picking the right tenants: You can’t protect yourself enough here. Carefully screen your tenants, including background and credit checks, employment verification, eviction records, and landlord references. The wrong tenants can end up costing you so much in lost rent, repair fees and legal expenses that you can’t ever be too safe!
- Managing the property: Dealing with the daily responsibilities of a real estate investment business can get intense quickly. As you try to keep up with new tenant screening, maintenance and improvements, tenant requests, landscaping, and scheduling contractors, you’ll find yourself devoting more of your time to the property. As you expand to more properties, the demands will grow beyond what you can do, and you’ll need to hire a property management company or manage your own crew.
Making the right choices as you start investing in real estate will help you to avoid some of the pitfalls that can bring your business to a halt.
Deciding if you have the right stuff to be a landlord
Hopefully you’re starting to recognize that it’s a little more complicated than just buying a house and watching money start to roll in. Becoming a landlord takes a combination of skills and the right kind of personality. One of the easiest traps is to become friendly and informal with your tenants, leading to legal gray areas when there are disputes. If you aren’t comfortable with standing your ground during a conflict, you may be better off hiring a property manager to handle the day to day interactions.
Even if you know how to get started in real estate investing, you’re eventually going to find yourself in a situation that leaves you scratching your head in confusion. Luckily, you have access to the qualified Experts on JustAnswer to help you with your landlord tenant questions. They can help you find a solution you can manage yourself, or get you pointed in the right direction if the situation requires outside help.