Aug 16, 2021

Investing In Rental Homes

53% of 1 - 4 unit rental properties are owned by Mom and Pop investors.  Many right now are being hammered by the government's Eviction Moratorium; but eventually things will get back to normal.  People invest in Rental homes presumably for income potential and long term appreciation.  Investment in Real Estate also provides certain tax benefits, which may lower someone's overall income taxes.  However, there are many things to think about related to being a landlord.  

First, if you buy crap, you will own crap.  There are no bargains in real estate.  In many parts of the country, it may be possible to buy older homes for under $150,000.  The problem is that unless they have been fully renovated including new plumbing and electrical, the odds are pretty good that expensive repairs will eat into any potential income or even appreciation gain that may occur over many years.  Stay away from older homes unless they have been renovated.  

It is also possible to get "deals' on homes in poor locations; next to a railroad track, near power lines, near commercial properties, or on a busy street.  Just remember all of those objections will limit the number of renters interested in living in the home.  Fewer renters will mean lower rents possible. 

Most important, the way to increase return on investment is to manage the property personally rather than hire a property management company.  That does not necessarily mean doing actual repairs; but it does mean having a good plumber, electrician etc. on call when things go wrong.  It also means the tenant calling you directly to solve a problem.  

Finally, it is absolutely critical to screen tenants.  That means a very lengthy rental application to scare away dead beats and running a credit report.  Rental applications are available on the Internet.  An owner should not rent to anyone that has a credit score below 600.  Anything less mans a bad credit history, which is a pretty good indicator that you may not be paid the rent.  To avoid all of this, you can invest in a Real Estate Investment Trust that owns rental properties all over the country.  The returns may not be quite as good; but then you won't be getting a call from a tenant at 2 am in the morning.  Investing in a REIT, will give you the advantages of owning rental properties without the hassle.