I have had quite a bit of experience with buying, selling, and managing rental property and I have come to some conclusion based on this experience. If your thinking about becoming a landlord there are a few important steps to take before taking the plunge.
1. Start Small – One of the biggest mistakes I made as a new real estate investor was buying to many properties too fast. I eventually learned some costly lessons to come to this conclusion but trust me it’s better to buy only 1 or 2 properties your first year so that you can really get a hands on grip of all that’s involved with being a landlord. If after the first year you decide it’s not for you than you have the option to keep them and buy no more and keep collecting the rental income or sell them and get completely out.
2. Buy In Working Class Neighborhoods – Low income areas mosty have tenants that don’t pay or when they do you have problems collecting it not to mention that there are much fewer buyers for these properties when you decide to sell. High income areas have good tenants that pay but between the higher mortgage payment which causes little to no cash flow and the higher property taxes it’s almost impossible to net a positive cash flow unless you buy the house for cash. Stick with homes in middle income areas where people have jobs but don’t make a lot of money. The tenants these homes attract are mostly good hard working people that pay their bills and between the nice cash flow and increasing property values you can really do well.
3. Buy In Cash – You have probably heard the term “Cash is king” and it hold true. When you make an offer with cash you can get huge discounts off the sales price and the seller and realtor know they won’t have any problems closing on the property. If you have enough cash always buy homes using it and than after you get a great deal and close on the house you can cash out by financing the home with a bank. Since you bought the home at a discount using cash you may be able to get all your cash back using a mortgage.
These are just a few words of wisdom that it took several years to realize and can make you a lot of money and save you even more. Owning rental property is one of the best ways to make passive income if you know what your doing.