Individuals who seek to harness the power of real estate investing to create a passive rental income should carefully consider their expenses and income and the type of property they will purchase to gain the best return on their investment.

Money Matters

Although investment debt is part of an investment portfolio, personal debt should be paid down or off prior to investing in rental properties. In addition, these individuals should avoid moving money around three to six months prior to investing.

Because the down payment on investment properties is higher than owner-occupied properties, investors need to save enough for a down payment. In addition, these individuals should explore various mortgage options, such as conventional or VA loans. They should also compare rates and terms among mortgage companies.

Investors should be able to pay their mortgage without rental income in case of lengthy vacancies. Finally, investors should have a fund for expected costs, such as maintenance, and unexpected costs, such as roof damage from natural disasters.

Property Location

New investors should conduct extensive research on the neighborhood and local housing market. For example, is the neighborhood up and coming or declining? These investors should also visit the neighborhood at different times of the day and on different days of the week.

Property Type

Investors should determine the type of property they seek. For example, will they purchase single-family homes or multi-unit properties? Then, they should settle into this niche to gain expertise.

Buyers should seek properties that are below market value. Exercise patience and be open to alternative sales, such as bank foreclosures and off-market properties, because these homes may be significantly lower.

Investors should stay focused on their goals and evaluate properties by the numbers, leaving out emotion. They should also avoid properties that need a lot of work.

If your goal is to become a landlord, carefully consider your personal financial situation and prepare for the financial investment that will be required to purchase and maintain your rental property. In addition, carefully consider the type and location of the property you will purchase to maximize your profit.

James Montano