Looking to take the plunge into real estate investing but not sure how to get started? Here is a great tip for beginners: One of the most affordable yet strategic ways to build wealth using real estate is to buy a small apartment building, live in one unit, and rent out the others.
This way, you get a feel for being a landlord; but you also minimize risk because your tenants are covering property expenses and your mortgage--or making a nice dent in your payment, at least. A perfect situation for first-time buyers and first-time investors alike! Plus, it’s often easier to get a loan on a multi-family unit than any other piece of real estate.
Some crucial points to consider when looking at the future of multi-family housing:
- More than 70 million Baby Boomers are heading towards retirement
- Increasingly, apartment complexes may be converted to retirement communities to keep pace with demand
- Millennials are buying homes at a lower rate than their counterparts in older generations
- In many communities, building new apartment units is becoming more expensive
Investing in rental property is not for the faint of heart, to be sure. However, adequate due diligence will go a long way towards keeping your investment protected and profitable.
The first component to your investment is to pick a great location (after all, this is real estate!). For long-term equity growth, a good location is key. Look for proximity to major roads, public transportation, good schools, and places to walk to. You also want to get inside the minds of your audience (the potential tenants) and predict what their priorities will be. If you are in a college town, for example, it's important to know how students think, the maximum distance they're willing to be from campus and the locations they consider desirable. The goal is to buy a property that will be in high demand.
Starting small is recommended. Begin with an affordable investment, like a single unit with in-law or bonus space; or a duplex. Because you're just getting started, stay away from properties that need significant repairs, since these could cause you to become overextended in your investment.
Crunch the numbers, and then double-check (and triple-check) them. Treat your rental property like its own business. Accurate estimates of the rental income and the costs associated with leasing will put you on a path to success. Betting on appreciation alone to increase value is not a good idea. Vacancy, turnover and eviction are realities of leasing any property, and a wise owner will factor these items into their decision.
Once the deal is done, choose tenants wisely. A final, critical piece of the puzzle is to decide whether or not you intend to manage the property yourself or hire a property manager. Applicants who are not qualified, late rent payments and other lease violations are facts of life, so if dealing with any of these scenarios makes you uncomfortable you may need to hire someone to do it for you.
We also recommend purchasing yourself a home warranty plan each year; so that you can make a claim whenever repairs and replacements are required including but not limited to appliances, plumbing, electrical, garage door, etc.
Real estate investment can be a rewarding, enjoyable way to grow wealth, but it shouldn’t be entered into lightly. We have helped numerous clients invest in properties that they are successfully renting out as short-term vacation rentals & long-term rentals, too. Real Estate is a powerful vehicle and can be the strongest asset in your retirement portfolio.
*Always consult your local laws, regulations and guidelines to ensure that any investment you make takes place within the confines of established standards.