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Investors have been talking about the pros and cons of long-term rentals for a long time. Some investors might do better with short-term rentals, while others might prefer the stability of long-term rentals.
In this post, we'll go over everything you need to know about long-term rental investments, including their benefits, risks, and things to think about before investing.
Before Investing, Think About These 4 Factors
Before investing in a long-term rental property, you need to figure out how much money you need and what kinds of loans are available to you, be they traditional mortgages or commercial loans.
You’ll need to compare the terms and interest rates of different loans to decide which financing vehicle is best for you.
While you’re calculating the possible rental income and costs, think about all costs. Remember to include things like property taxes, utilities, and repairs, and work all of these into your estimation to determine whether the investment is possible financially.
Location, Location, Location
Location is one of the most important factors that can affect how well your long-term rental property investment does. Look for areas with strong job growth and population growth, which can lead to a steady demand for rental properties and rising property values over time.
If you want to rent out your property, think about how close it is to schools, public transportation, shopping centers, and other important places.
Overall Property Condition
If you want to rent out a property for a long time, it's very important that it's in good shape. Check the property carefully to see if it needs any repairs or maintenance before you buy it. Make sure the property meets local safety and building code requirements to avoid legal problems.
Property Management Availability
To make sure your long-term rental property is a good investment, you need to know how to take care of it. If you don’t, make sure you spend the extra money to hire a professional. It is without a doubt worth it!
A reliable property management company is one that can handle repairs, collecting rent, and dealing with problems with tenants.
Pros & Cons Of Investing In Long Term Rentals
Risks of Investing In Long Term Rentals
- Tenants move out: It's common for long-term renters to leave, which can lead to empty apartments and less rental income.
- Property Damage: When tenants move out, the property can be damaged, which can cost a lot to fix and maintain.
- Rent Evasion: When a tenant doesn't pay their rent, it can cost the landlord money, cause legal problems, and take a long time to get rid of them.
Benefits Of Investing In Long Term Rentals
- Steady Income: Long-term rental properties provide a steady stream of rental income, which can lead to a reliable and steady return on investment.
- Long-term appreciation: Rental properties that are rented out for a long time can increase in value over time, which can lead to more equity and maybe even capital gains.
- Tax Incentives: People who rent out their homes for a long time can deduct their mortgage interest, property taxes, and maintenance costs from their taxes.
8 Steps To Start Investing In Long Term Rentals
1. Zero In On A Location
Look into different areas with high job growth and population growth to find places where people always want to rent. Find out about the homes for sale in those areas, such as how well they have rented in the past, how popular they are on the market, and how likely they are to go up in price.
2. Identify Potential Properties
Use a tool like Leadflow to determine a property’s Rentability Score.
Once you've found a property, have it inspected so you can determine home repair costs. As part of checking out a property, you should also look at its rental history and income to see if it meets your financial goals and expectations.
3. Secure Financing
After you find the property you want to buy, you need to figure out how to pay for it. Here are a few of the most popular ways to finance the purchase of long term rentals;
1. Mortgage
2. Using a HELOC to purchase a property
3. Hard money loans
4. Private lenders
5. Fannie Mae loan
If you need a mortgage, compare the rates of different lenders to find the best deal for you. Before committing to a mortgage or other form of financing, it's important to know what your financial obligations and commitments will be so you can work that into your total budget.
4. List Your Property
Listing your property on popular websites like Zillow, Apartments.com, Rent.com and Zumper will all offer you great exposure.
Just remember to optimize your listing using high resolution photos and detailed descriptions to entice potential renters.
5. Set A Competitive Rate
The next thing to do is decide how much rent you will charge. You can look at the rental prices of similar homes in the area using a real estate comparables software to get an idea of how much they cost. It's important to think about the costs that come with the property, such as taxes, insurance, repairs, and any other fees or costs that may come up.
6. Screen Tenants
It's important to choose tenants carefully to make sure they'll be reliable and responsible. You can look into the person's past and credit, and you can also get references from past landlords or employers. You should also talk to potential tenants to get a sense of who they are and how they will treat your property.
MyRental offers a great and affordable background check solution for property owners.
7. Sign The Contract
Once you find a tenant who meets your screening requirements, you will need to sign a lease agreement. The lease should list the rental terms, such as the rental rate, the schedule for making payments, and any rules or restrictions that will apply.
To make the first lease agreement, you will need the help of a lawyer who specializes in contracts like this. After that, you can use this same rental agreement template for all future rentals.
8. Manage The Property
You'll have to take care of the property once the renter moves in. This means collecting rent, taking care of repairs and maintenance, answering questions from tenants, and making sure the property stays in good shape. You can manage the property yourself, or you can hire a property management company to do it for you.
The Takeaway:
Regardless of whether you choose short or long term investments, Realeflow is the all-in-one investing software you need to help you succeed and make your investment profitable and passive. Ready to get started? Click below!
