Even during economic downturns, real estate is one of the best investments you can make. Real estate investments are a great way to add physical assets to your financial portfolio. When you own rental homes or a small apartment building, expect an excellent return on your investment, predictable monthly cash flow, and annual tax advantages.
6 types of rental units are considered residential real estate. These include:
- single-family home
- low-rise apartment buildings
- large apartment communities
- condominium
- townhouse
- duplex
Deciding on which type of rental property to finance and own will depend on how much money you’re willing to invest and how much time you’re willing to commit. This allows you to set a minimum and maximum amount, so you can narrow your property search within that range.
After you decide on the type of rental unit, you would like to invest in, you will need to know where to find quality rental properties and how to acquire them.
Consider areas with high demand from renters.
One great thing about investing in real estate is that everyone needs a place to live. First, consider the big picture. What type of community are you looking to invest in? This could be the suburbs, the city (urban areas), the country (rural homes), and many places in between, such as quaint little towns, high commerce districts (along freeways and busy interchanges), or even student housing if it is a college or university town.
Or consider the types of people that put a high demand on rental units. Working families, students, young couples, retirees, or income-limited. Each of these demographics has benefits and drawbacks. According to the National Apartment Association (NAA) it is becoming more common for young people to share living spaces and split the costs. And, when you choose to rent to the income-limited population, there are government rent subsidies that you take advantage of.
Once you make these decisions, the where and who you would like to rent to – then you’ll know which type of home, apartment, duplex, or condo you will invest in. From here, you can start communicating with real estate agents in that area.
Network with friends, neighbours, and coworkers
You would be surprised at how many excellent real estate deals can be made by levering the power of your inner circle. When you put the word out to friends, neighbours, and coworkers, what happens is that when they hear of someone they know that is looking to sell a property at a reasonable price, they will immediately think of you.
Word of mouth is a time-honoured way of doing business. Consider a friend of a friend who has a relative that recently passed away with an estate home, and no family members are interested in taking ownership of the house. They would rather sell quickly at a low price and add the reward to the inheritance.
This scenario happens much more often than you would think. But, if you don’t spread the word through your network of contacts, then you’ll likely never hear about this opportunity.
Neighbourhood business owners are a good resource.
Another profitable networking avenue is your neighbourhood business owners and professionals. These people in your neighbourhood are more likely to own rental property themselves. Think of your cable installer, mailman, gas station, nail salon, and coffee shop owners.
According to a Harvard University Study titled who owns rental properties, and is it changing?, a large percentage of rental properties are owned by LPs and LLCs or business owners that have formed a general partnership made up of two or more partners to pool resources for more significant investments like multifamily units or condominiums.
Think about the people you interact with that view a ton of property, and reach out to them. Your mailman, cable installers, plumbers, roofers, and other contractors that work on houses can all be great resources to add to your bird dog program.
Do the footwork – drive around the communities you want to invest in
No one wants to speak the ‘G’ word aloud – but gentrification is here, and it is an opportunity to invest in properties that are in a state of disrepair – but they are located in an area that is up and coming. These are typically urban landscapes where homeowners are eager to leave the quiet of the suburbs to live near downtown nightlife, sports venues, dining, and museums. In addition to having a shorter work commute, the homes are typically renovated to feature the most modern materials and appliances.
If you live near a big city or another urban environment, simply hop in your car and drive around the neighbourhoods within the city limits. You will likely notice newly built or renovated homes standing adjacent to one or more vacant or abandoned properties. Just be sure that your investment in the home will be quickly returned, so you can recoup most or all of your investment dollars within 5 to 10 years.
While you may already be aware of shifting neighbours in places like Seattle, Portland, Baltimore, Detroit, and Atlanta, there are similar rental home investment opportunities in smaller urban locations like Cincinnati, Ohio and Greensboro, NC.
A final resource for acquiring rental units is having a relationship with an excellent real estate broker, either commercial real estate or residential real estate. Real estate brokers have access to more properties and will have different personal contacts and partnerships than real estate agents.
Brokers can assist you with acquiring rental units and also mediate conflicts if a dispute arises. No matter what deals you find, always pass them by your legal and financial advisors before making a final commitment.
Sources
https://www.naahq.org/who-are-todays-renters
https://www.jchs.harvard.edu/blog/who-owns-rental-properties-and-is-it-changing
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