Learn how to start investing in a rental property by learning what goes into owning rental real estate. Learn how to research markets, analyse investment properties, and how to manage tenants and properties.
- Determine your investment criteria
Once you understand what becoming a landlord entails and how to invest in rental property, you’ll want to narrow down your investment criteria by identifying the types of properties you want to invest in. Investment criteria can entail:
- Family home
- Holiday rental
- Luxury property
- Small multifamily buildings
- Apartment buildings
- Zip code
- Number of bedrooms and bathrooms
- Square footage
- Construction type
- Age of the property
Minimum cash flow per door
calculate the yearly rental income of a property and divide it by the total amount that has been invested in that property to find out the rental yield for the property. You want to aim 7% yield or more.
- Searching for your investment property
Strict investment criteria is helpful as you search for an investment property, as it narrows down which properties are actually opportunities to conduct further due diligence on. You can search for investment properties online using industry websites like Daft.ie and MyHome.ie.
- Run your numbers (calculate cash flow)
Landlords make money in rental real estate by earning cash flow, which is money that is earned or lost in relation to the property’s income and expenses. Ideally, landlords should make money with each rental property they purchase
It’s important to analyse each investment opportunity by completing a cash flow analysis to determine the property’s actual rental income and expenses and net cash flow. Knowing the net cash flow of a property will help you calculate your return and determine the ideal buy price to yield your desired net cash flow.
- Complete due diligence
Due diligence is one of the most important aspects of being a landlord. Once you’ve identified an investment opportunity, you will need to verify the property’s current and projected expenses, have an inspection completed and get actual quotes for repairs or improvements that need to be made to the property. Once completed confirm with a letting agent that the desirable rent for the property can be met to obtain this profit.
- Purchasing the property
If all works out, you’ll need purchase the property. There are several options for funding a rental property including:
- Traditional mortgage
- Buy to Let mortgage (Three different types)
– Repay interest and capital throughout the term of the loan
– Repay interest only in the first year for Loan to Value up to 70%
– Repay interest only in the first five years for Loan to Value up to 60%
- Hard money loan
- Private lending account
- Syndication or joint venture
It’s a good idea to develop relationships with potential lenders or financing partners prior to identifying an asset. That way you know their financing requirements and can close quickly once you find a property.
- Getting the property ready
If the property is vacant or in need of repair, get to work straight away to minimise losses. This could include minor or major repairs like painting, landscaping, or replacing the roof, furnace, or HVAC system. There is no need to conduct a full renovation just to rent a property out, but homes that are in good, updated, clean condition will typically rent faster and for a higher rate than properties that are outdated, dirty, or in substandard conditions.
- Market the property and screen potential tenants
The next step is to market the property for rent. If the rental is priced well in relation to the going market rent in the area and your property is in good condition, it’s likely a lot of interest and enquiries from potential tenants will come in.
Contacting your local estate agent can really benefit you in this part as they have the best expertise in this industry. They can also have lists of potential tenants in their books that would be ready to take your property straight away if it suited the new tenants.
- Renting of the property
Renting the property includes signing a lease, receiving a tenant’s security deposit, moving the tenant in, and completing a walk-through or move-in inspection. A well written and thorough lease is very important as it addresses the rules, policies, and conflict resolution procedures for living in the rental property, and clearly defines tenant and landlord responsibilities.
- Managing the property
The bulk of the work involved with being a landlord resides in property management. Initially, you may choose to manage your rental properties yourself to gain experience, or you can hire a property manager from a property management company.
Hiring an experienced property manager can be well worth the cost. After all, it means less work and fewer headaches for you, as you take advantage of their industry expertise. In general, a property manager will:
- Know how to market the property
- Understand the local rental market and ensure you price the rental accordingly
- Show the property to potential tenants (so you don’t have to)
- Screen tenants (conduct proof of funds and verify references)
- Collect rent on your behalf and deposit the money into your bank account
- Handle late rents and navigate the eviction process
- Handle tenant complaints
- Arrange maintenance and repair work
- Pay property-related bills, such as property taxes, utilities, and insurance