You purchased your first rental property and it’s been an absolute success. Your tenants have been a dream, the rent payments generate a nice amount of cash flow, the property is becoming ever more valuable by the day, and you’ve decided to start hunting for the next property to add to your portfolio. Here are a few tips to help you in your search.
3 Tips for Building a Rental Property Portfolio
1. Choose Based on Location
Yes, it’s a tired old real estate adage, but that doesn’t mean that it’s not still true. The most important factor in any real estate purchase is location, location, location. While this applies when purchasing your primary home, it’s even more important when building a rental property portfolio.
Why? It doesn’t matter if you’ve scored an amazing deal on a rental property if no one wants to live there. When researching potential properties, you must think like a tenant. Are there good schools in the area? Is a property located close to good retail stores and restaurants? If it’s a large city or a college town, is there public transit easily available nearby? Are there nice amenities like parks and bike paths in the area? In short, would you want to live there? It’s also essential to research the rental and real estate market in the area to ensure that the purchase will make sense for your portfolio. You must be able to make enough in monthly rent to cover the mortgage and other expenses associated with the property. If you’re asking for a rental rate that’s above average for the neighborhood where the property is located, the rental will likely sit vacant.
2. Go Turnkey
Ah, the dream of buying and flipping houses the way the folks do on reality TV! Real-world house flipping isn’t typically as kind to investors who engage in this strategy without the benefit of their very own television show. Unexpected repairs and delays in the work schedule can throw your budget off in a jiffy.
Especially for investors who would like to generate passive income through rentals rather than purchasing a property and waiting for it to appreciate (or playing the flipping game), turnkey properties provide the opportunity to buy rentals that are ready to go on day one. This means not discovering at the last minute that the foundation is cracked and needs extensive work or that the home must sit empty for the next six weeks while the kitchen and bathroom plumbing gets redone. The minute a deal is closed on a turnkey property, it’s guaranteed to be up to par and ready for your first tenant.
3. Don’t Go In Alone
The most important tip for building a rental property portfolio is to work with an experienced team that can guide and support you through the process. First, find a real estate investment company that can walk you through all of the available options and help you find properties that are a good fit for your overall goals. The company should specialize in the type of property you have in mind (condo, single-family home, or townhome, for example) and needs to work extensively in the area where you’re considering a purchase.
Once you’ve found the right property (or properties), it’s helpful to have someone manage them. While you may be able to play Part-Time Landlord for one rental property, as your portfolio expands, you’ll find it impossible to keep track of multiple properties, as well as the maintenance, tenant, payments, and repairs that must be tracked for each one. A good property management company will take care of all of this for you, freeing you up to pursue other interests, continue in your full-time career, or even move into retirement. There’s a reason that rental income is called “passive” income, and building a rental property portfolio is an excellent way to help generate it and create financial security for years to come.