Investing in a rental property means buying a property that can generate an income in the form of rent. There is no doubt that rental property investment can be a great way for beginners to generate positive cash flow every month. However, many people still find it challenging due to expenses typically associated with traditional real estate investments including property management and renovation works. In this article, we’ll give you an overview of how rental property can easily be bought as a turnkey investment.
It is a well know fact get started in real estate investing can be very tricky and overwhelming. In recent years, the solution to this problem has emerged under the so-called turnkey rental properties. Why did investing in turnkey rental property become so popular? The answer is because, on top of all of the advantages it entails, investing in rental properties offers an ideal solution to investors’ biggest problem: Headache. Turnkey rental properties allow investors to sit and enjoy their passive cash flows while someone else does all the hard property management work for them.
Turnkey Rental Property Definition
A rental property, also called ‘turnkey’, is a real estate property that is fully rehabilitated, functional, and ready to use. It is usually managed by a third-party property management company whose aim is to make the real estate investing process as simple as possible to you as an investor so that all you have to do is to “turn the key”. This type of property is highly appreciated by new real estate investors who have little experience in rehabilitation, or even seasoned investors who simply prefer to have someone else do the analysis and renovation for them.
Is Rental Property A Good Investment?
Should you invest in rental properties? Real Estate is a proven wealth-building vehicle. The most common form of real estate investing, the “buy and hold strategy” involves purchasing a property and renting it out for an extended period of time. Essentially, a “buy and hold investor” seeks to create wealth by renting the property out and either collecting monthly cash flow or simply holding the property until it can be sold for profit in the future.
Among the advantages of this strategy is that during the time that you hold the property and rent it out, the mortgage is paid down every month, decreasing your principal balance and increasing your equity in the rental property. Investing in rental properties can generate passive income, significant tax benefits (being an income property), and build equity from price appreciation over the years.
Real estate is the only investment vehicle that you can live in or rent to produce income. You can also derive large tax-free profits when you sell your investment property at a higher price than you paid for it. But, before investing in a rental property you must consider your investment priorities and temperament. How much time do you have to devote to rental property investing? Can you solve the problems on your own? You can also click on this link to know about the various risks in rental property investing.
You need to know how to estimate a rental income and learn about the other ways you can use to monetize a rental property. Make sure you understand all of the expenses associated with rental property investing. There is a lot more than just a mortgage to think about. It is important to understand the two different types of appreciation and how they can impact what type of property you want to buy and where to buy in. Appreciation in the rent and property value.
Rental Properties Generate Passive Income
Investing in turnkey rental properties is a highly appealing approach to many investors who prefer “hands-off” property management of their properties, while still enjoying the return on their investment. In this case, the third-party property management company is responsible entirely for the management of your property which in fact you don’t even have to see.
All that you need to see is your ROI flowing into your bank account each month. For example, if maintenance is needed, it will be the property management company that will receive the call, not you. They will also be collecting rent from the tenants and addressing their complaints.
Investing in rental properties has many advantages that may not be considered by first-time investors. The things mentioned above are not a cup of tea for every investor. Although it is important to learn all things, if you can’t due to any reason, you can choose so-called Turnkey Rental Property Companies to help you out. The easiest way to get started in rental property investing is by buying rental properties from reputed Turnkey providers.
The Importance of Real Estate Education
The best investment you make is in your own education. Real estate investing is not a “get rich quick” scheme. When it comes to your real estate education, a solid foundation is a key to a long-lasting business. As you analyze your deals, make sure to learn the trade and perfect it. You need to tune in to sources of real estate education so that you can continue building your knowledge base and avoid critical mistakes.
Books are fundamental in gaining an education in real estate and perhaps the most widespread learning method for investors. Real estate books are produced each year by the thousands, and every major bookstore in the world contains a whole section on real estate investing. With the advent of the internet, you can buy e-books on real estate education at cheaper rates than paper books.
You can subscribe to real estate blogs, which can be an amazing source of free information. Real estate podcasts are one of the newest innovations in the world of real estate investor education. You cannot fly solo. Building a large network is a vital part of being a real estate investor. You need to build a network in the real estate market that will help you to succeed.
Finding a mentor and learning from those who have come before you is one of the most important steps you can take in your real estate investing education. Concentrate first on establishing a relationship with seasoned investors who you would like to learn from. A mentor doesn’t need to be a real estate mandate Donald Trump or Robert Kiyosaki.
A mentor can be the investor down the street who owns a half-dozen rentals and works a full-time job. You can join portals like BiggerPockets and learn from real investors who have built wealth specifically through rental property investment.
Rental Property Investment Can Be Simplified
The first and foremost advantage of buying a rental property is that you get to simplify the process. Most of the investors interested in real estate are looking to generate a second income, not a second job. Doing it all by yourself takes a lot of your time, which otherwise can be saved by choosing a Turnkey rental property company that will do the heavy lifting for you.
Unless you have been investing in real estate for a really long time, the odds are that turnkey operators have better rental property management experience than you do. They know how to deal with tenants and contractors, and they have their own property management strategy that ensures routine rent collection and handling of any payment problems.
If you decide to buy a rental property on your own, you will have to do plenty of market research to decide on the best area to invest in. However, a good turnkey rental property company will know the sweet spots of the market by heart. They already know which markets are sustainable and good to invest in.
This experience takes plenty of time to build and having it will save you a lot of money as well as energy. These companies want to be in this business for the long term, so they make sure to sell the best rental properties to their clients. However, it is wise to hire your own turnkey property consultant to cross-check their proposed ROI. You need to invest in markets where development is heading. The best rental properties are the ones that are well located and physically sound.
These companies can purchase properties such as REOs in bulk every month. They have good relationships with banks, close deals quickly with cash, and usually get better pricing than an individual investor. They also have their own team for renovation work which will typically cost you less than hiring contractors on your own since they can buy materials for bulk.
To make sure your rental property is purchased and managed in the right way, you may have to have professionals such as contractors, brokers, loan officers, tax advisors, attorneys, appraisers, title/escrow agents, and accountants, which you may not be able to do on your own. Instead of it, turnkey providers already have ongoing relationships with all these professionals which saves your time and ensures your property is managed in the best way. They also have their own contractors to do the repair work. They can help you with financing as well.
How To Find Rental Properties For Sale Online?
Knowing where to find rental properties is an increasingly expensive challenge. Online databases are a great place to start your property search because they allow you to query and filter properties from all over the country based on specific qualities. Norada Real Estate Investments makes real estate investing easy. It helps you by finding your next rental property for sale with big data analysis supported by their investment experts.
We have exclusive off-market rental property deals in multiple markets in the United States. Sites like Trulia, Zillow, or Loopnet are good but there are some intricacies you need to know when searching on them. You need to find a diverse list of suburbs across the city and in different price brackets which have good transport, schools, lifestyle, high sales volume, and high percentage value growth.
If you are interested in buying rental properties and portfolios at this time, you can choose the Houston Housing Market. Houston has everything: the people, the diversity, the business climate, being world-renowned in energy, medicine, space, and manufacturing, and above all a booming real estate market.
Importance of Rental Investment Analysis
Once you have found a bunch of rental properties that you are interested in, it’s time for analysis. Before buying the rental property, the real you should know if the property value in the market changes dramatically or not. There are several primary factors to consider, but cash flow and appreciation are the two most important variables in rental property investment.
Cash flow is simply the money left after all the bills have been paid, and appreciation is the equity gained as the property value increases. You need to crunch the numbers and figure out if it’s a good investment. As an investor, you need to understand how to evaluate deals and opportunities. By far the most common mistake that we see new investors make with this strategy is buying bad deals because they simply don’t understand property evaluation.
That’s why analyzing nearby properties (comparables within a mile or two) is very important. Market “comps” determine the value of single-family homes. These comps or “comparables” are nearby properties with similar characteristics. They share variables like the floorplan, number of bedrooms and bathrooms, garage size, and amenities. A single-family investment home generally rises in value if a similar home is also rising in value and vice versa.
Other common problems include underestimating expenses, making bad decisions on tenant selection, and failing to manage properly. You need to learn how to figure out income, expenses, cash flow, and whether it’s a good deal for you. You need to see what is tenancy type of the market is. Is it a periodic tenancy or a fixed term of 6-12 months? A fixed-term rental property has a rent assessment at the end of every fixed term where rent typically goes up a percentage.
Know Your Area Before Purchasing a Rental Property
We recommend buying in an area that you are familiar with, at least for your first few properties as you get your feet wet. It could perhaps be your college town or your hometown. It helps to have some knowledge of the area. As a bonus, if you buy in an area that you visit anyway, your leisure travel can become at least partly tax-deductible because you will be adding a business component to those trips to check up on your property.
If you are not familiar with an area, try spending a few weekends in your target market over a period of months. Drive around in 2-3 zip codes you are interested in and talk to neighbors, local shop owners, property managers, etc. You’ll need a network of local professionals to help you manage your property.
Understand Market Dynamics Before Purchasing a Rental Property
You need to think strategically when choosing and purchasing your rental property, and to work in line with both market trends and the general guidelines that dictate whether your investment is poised to succeed or not. Data and analyses can help you understand market dynamics such as — supply and demand, median home prices, median days on market, median rent prices, new construction, mortgage rates, and local economic indicators.
The most desirable rental markets for property investors aren’t always in big cities. Investors prefer to buy property in growing markets having strong economic growth, low median housing prices, high rents, and low vacancy rates. You can also buy an out-of-state rental property without having to live in that state or handle the management.
This process also helps you as an investor to diversify your portfolio of rental properties. For example, if you live in New York City and cannot afford to buy a rental property, you can diversify your portfolio and still generate passive cash flows by buying rental properties in more affordable distant growth markets like Atlanta, Dallas, Memphis, or Indianapolis.
What is Buyer’s Market?
In a buyers market, there are more homes for sale than there are buyers in the marketplace, so the housing market is favorable to buyers. For real estate investors, buyer’s markets are the perfect time to buy an investment property because the negotiating power is on their side and they can easily move on to the next potential deal if a seller won’t agree to their contract terms.
What is Seller’s Market?
In a seller’s market, more buyers are looking for homes than there are homes available. In other words, there are many interested buyers, but the real estate inventory is low. Since there are fewer homes available, sellers are at an advantage as they are more likely to receive multiple offers (above their asking price).
Financing Your Rental Property Investment
You need to assess your current financial position to get a realistic sense of your budget and timeline for making your first rental property investment. Make sure you’re financially fit before investing in rental properties. Most successful real estate investors build their investment portfolio through saving money and then gradually buying properties over the years. Going for a mortgage can help you to quickly build your portfolio of rental properties.
Instead of putting all your savings into one rental property, you can contact lenders and borrow from them and buy multiple rental properties. Typically investors need to put 20% of their money as a down payment and the rest of the amount is covered by the loan amount. The best returns on real estate rely upon the use of credit to obtain the leverage of using other people’s money. Pay attention to your monthly budget and make sure you have adequate insurance coverage as well.
One of the most commonly stated reasons that people give for investing in real estate is that they are seeking out financial freedom. Investing in rental property is an alternate path for seeking financial freedom. While active investors enjoy spending time on research and management, passive investors tend to have less time or simply do not prefer to be engaged in this tedious task; this is when turnkey rental properties become a great solution.
Rental properties are incredibly passive; they allow you to generate cash flows at distance, while other people who are specialized and professional do all the hard work for you. Whether you are a new investor, or a seasoned investor looking to diversify your portfolio or invest with no-hassle, investing in rental properties is something you should not miss.