Long Term Rental Investments: A Comprehensive Guide For Prospective Investors
Real estate investors have been talking for years about the pros and cons of long-term rentals. Some investors might do better with short-term rentals, while others might like the stability of long-term rentals.
In this post, we'll break down everything you need to know about long-term rental investments, including their benefits, risks, and things to think about before investing.
Things to Consider Before Investing In Long Term Rentals
1. Financing options
- 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, such as traditional mortgages, commercial loans or even using a HELOC to finance investment properties.
- Think about the possible rental income and costs, like property taxes, utilities, and repairs, to make sure the investment is financially possible.
- Compare the terms and interest rates of different loans to figure out which one is best.
2. Property location
- When you invest in a long-term rental property, location is one of the most important factors that can affect how well your investment does.
- Look for areas with strong job growth and population growth, as these 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 amenities.
3. Property condition
- For a long-term rental investment to work, the condition of the property is very important.
- Before you buy the property, check it out carefully to see if it needs any repairs or maintenance.
- Make sure the property meets local safety and building code requirements to avoid any legal issues.
4. Property management
- To make sure your investment in a long-term rental property works out, you need to know how to manage the property.
- Choose if you want to manage the property yourself or if you want to hire a professional.
- Find a dependable property management company that can take care of repairs, rent collection, and problems with tenants.
The Risks and Benefits of Long Term Rental Investments
Risks Of Long Term Rental Investments
- Tenants turnover: It's common for tenants to move out of long-term rental properties, which can lead to vacancies and a loss of rental income.
- Property damage: When tenants move out, the property can be damaged, which can cost a lot to fix and maintain.
- Missed rent payments: When a tenant doesn't pay their rent, it can cost the landlord money, cause legal problems, and can take a long time to get rid of them.
Benefits Of Long Term Rental Investments
- Steady rental 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: Long-term rental properties can gain value over time, which can lead to more equity and possibly capital gains.
- Tax benefits: People who own long-term rental properties can deduct mortgage interest, property taxes, and maintenance costs from their taxes.
How to Start Investing in Long-Term Rentals
You can break investing in long-term rental properties into 8 key steps;
1. Research properties and locations
Find areas with a steady demand for rental properties by looking into different areas with high job growth and population growth. 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 value.
2. Find and vet potential properties
Use a lead generation software to help you find properties that meet your investment goals and criteria. Once you've found a property, make sure to have it inspected so you can estimate the necessary repairs before you buy it. As part of the process 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
Once you've found the property you want to buy, it’s time to find a way to pay for it. You can get a mortgage to pay for the property, or, if you have the cash on hand, you can pay with that as well.
If you need a mortgage, compare rates from different lenders to find the best deal for you. Before committing to a mortgage or other financing option, it's important to have a solid understanding of the financial commitments and obligations.
4. Set a rental rate
The next step is to decide how much you will charge for rent. You can use a real estate comparables tool to look at rental prices for similar homes in the area to get an idea of how much they rent for. It's important to think about the costs that come with the property, like taxes, insurance, repairs, and any other fees or costs that may come up.
5. Advertise and market the property
Once you've decided how much to charge for rent, you'll need to advertise and market the property to find renters. You can use different ways to market your business, such as online platforms like Zillow, Craigslist, and social media, as well as print ads, signs, and word-of-mouth.
6. Screen tenants
It's important to carefully choose tenants to make sure they will be responsible and dependable. You can check the person's background and credit, and you can also ask past landlords or employers for references. You should also talk to potential tenants to get a feel for who they are and how they will treat your property.
A great and affordable background check service is MyRental.
7. Sign a lease
Once you find a tenant who meets your screening criteria, you will need to sign a lease agreement. The lease should list the rental terms, such as the rental rate, the payment schedule, and any rules or restrictions that will apply.
You’ll want a lawyer’s help to draw up the first lease agreement. After that, you can use this same agreement template for every rental moving forward.
8. Manage the property
After the renter moves in, you'll have to take care of the property. This means getting the rent payments, taking care of maintenance and repairs, answering tenant questions and making sure the property stays in good shape. You can manage the property yourself, or you can find a property management company to do it for you.
Long-term rental investments can be a great way to make money and build passive income. Once you have a clear understanding of how to invest in real estate, make sure to test drive Leadflow’s real estate lead generation engine to help you find potential properties for short and long-term rentals.
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