Guidelines for profitable real estate rental property investing
Every real estate investor wishes they had a crystal ball to know the profit potential of their properties. Obviously, there’s no definitive answer to this question since each investor, property, and investment strategy is distinct.
Below are some guidelines to help rental property investors establish your rental property’s profit potential.
Investment motive
Every real estate investor has their own motive for purchasing rental properties. Some are looking for an additional income source Others are looking to rely on monthly rental incomes to cover their day-to-day living costs. Still others want to leverage rental income to fund retirement. Whatever your motive, achieving your financial goals with rental properties takes commitment and time in the beginning for it to really morph into passive income.
First steps in profitable investing
Find the best property for your needs
Do your research to find the best renal income property opportunities in your desired area. Thoroughly investigate the neighborhood market and pay close attention to properties listed below market value. Once you find an investment property that ticks all your boxes make sure to get a home inspection.
To determine profit, focus on cash flow
When you’re ready to crunch the numbers to figure how much profit you can make on a property, concentrate on cash flow, not appreciation. Banking on appreciation is dicey because there’s no way to know how much home prices are going to increase, if at all. Focusing on cash flow is a smarter approach to ascertain how much money you’ll be putting into the property, and in turn how much money you’ll be putting into a property, and in turn how much income you’ll generate.
Don’t overlook sweet spot markets
Experienced real estate investors look for properties in what we consider market sweet spots. Like all real estate investing strategies, rental income property investing is all about location. Don’t overlook sweet spot B and C class properties in Phoenix’s fast-paced rental market, which are usually more affordable to the majority of buyers and renters in the area. Sweet spot markets are where you’re most likely to get the strongest returns on your investment.
Compared to A class properties, B class properties generally:
- Are older
- Are inclined to list at lower rental rates
- Can be acquired at higher Cap rates
- Are close to schools and amenities
- Have a good overall appeal, but simply need some updates
and C Class Properties generally:
- Are more than 20 years old
- Are located further away from schools and amenities
- Need significant updates to compete with other property classes
While B and C class properties may need some added cash for upgrades and elbow grease, they appeal to middle-income renters and can easily be upgraded a property class with a few improvements.
The beauty of property management
Many investors don’t have the time to do everything required to successfully manage a rental property, including marketing, new tenant acquisition, rental payment collection, building/unit maintenance and repairs, landscaping, taxes, regulatory oversight, etc. is a full-time job in and of itself.
Hiring a property management company is an added expense, yes, but a proven, experienced property manager can handle all the important day to day and month-to-month responsibilities necessary for an effective and efficient operation, the return on investment for the property management fees you pay is incomparable when it comes to the peace of mind it provides.
The primary goal of a real estate property investment is to earn money. Real estate is among the most popular portfolio items among investors for its income-generating potential. It doesn’t happen overnight—at first, it takes commitment and hard work. By doing your research and following these guidelines, you can begin generating the rental income stream to meet your investment motive.
guidelines for real estate investing