More and more people are getting started in real estate investing and are looking to rental properties as a way of diversifying their investments and securing cash flow for the future. Rental properties can round out an investment portfolio and foe an ongoing income stream. Several major factors have made this a popular investment option:. If you want to get into rental property investing, you pproperty to learn how to evaluate whether or not a potential rental property is a good investment. The following two formulas will help. First, calculate the capitalization rate, or «cap» rate, on your intended investment. This is the profit you can make from net income generated by the property, or the rate of return you’d make on a house if you bought it with cash. This is a general rule of thumb that people use when evaluating a rental property. If it doesn’t, they’ll skip over it. If it doesn’t, then it doesn’t meet the One Percent Rule.
Your Home Can Be a Source of Income as Well as a Place to Live
Rent the Backyard, a San Francisco-based startup says it can help — by building a studio apartment in your backyard that you can rent out. The company , which is currently working with homeowners in the Bay Area for now, will handle all the permitting and construction, then split the rent revenue with you, according to a recent TechCrunch article. Regardless of where you live, though, there are ways to make money renting out a portion of your property. You could convert a basement or attic space into an apartment or build a detached unit yourself. Jennifer Beer, 64, a mediation professor, has rented out the master bedroom in her Lansdowne, Pennsylvania, home to more than a half dozen tenants over the past 20 years, for stays ranging from a few weeks to eight years. Beer says the income has helped her offset the cost of property taxes and utilities, although there are some drawbacks to sharing her space, including agreements about who handles the housework and maintenance. Search local listings for rentals in your area to get a sense of the rent that you might be able to earn. Cost : Little to none. But you can charge higher rent by offering a furnished room, says Bill Biko, who runs a landlord education website and has rented out hundreds of bedrooms in investment homes. Construction costs will vary depending on the size of the basement, whether there is existing plumbing, and whether you need to install a separate entrance. Homeowners who remodeled their basements saw a 70 percent return on investment when selling their home after two years, the Remodeling Magazine report found. Plus, the upkeep might be more expensive than you think. Letting someone else bring their tiny home onto your property may seem like a no-brainer, but it could be more complicated than it seems. Typically, tiny homes on wheels are considered RVs, and their occupants are considered campers, and can only stay in one place for 30 to 45 days in many municipalities, says Andrew Helling, a licensed real estate agent in Omaha. For a more permanent arrangement, you might need to attach the house to a foundation on your property, depending on local zoning laws. Cost : It depends. You and the tenant need to work out who pays for the cost of building the foundation and securing the house. Beyond that, the costs are minimal, although many tiny houses require utility hookups. Pros : You can get the revenue of having a tiny house tenant without the costs of constructing and maintaining a new building. As long as you have the space, you can bring in extra income by renting out part of your property. You might also want to seek the advice of a real estate attorney or property management company for guidance on how to become a landlord, drawing up an ironclad lease agreement and screening potential tenants. You may also like. These are the best and worst times of year to sell a house. How to calculate the square footage of a home.
Free Mini-Course: Passive Income from 2-4 Unit Multifamilies
Bargain properties are harder to come by, but mortgages are still cheap and rents are rising steadily. During the housing bust, when home prices fell nearly everywhere, you could easily buy a home at a low-enough price and charge a high-enough rent to generate a few hundred dollars a month in cash flow. Plus, the supply of single-family homes is slim in many cities. You can still find foreclosures, but their numbers have shrunk. That means you will probably have to look longer and harder to find the right rental property. Jeff and Donna Zibley of Apple Valley, Minnesota, a suburb of Minneapolis, looked at about 20 properties before they found the right one. They started with duplexes downtown but soon gravitated toward neighborhoods closer to home. Finally, they decided on a nearby townhouse that seemed like a comfortable fit. The year-old, two-bedroom, two-bath home had been meticulously maintained, plus it was located in a good school district and was close to public transportation. Start your search for a property by identifying an economically stable neighborhood where you can reasonably expect long-term price appreciation, recommends Robin Voreis, a real estate agent in Minneapolis who owns half a dozen residential investment properties with her husband, Aaron. Voreis, who advised the Zibleys, helps clients find homes to buy and rent out. She says that the bigger and more expensive the house, the harder it is to find tenants because at that level, people are more likely to buy their own home or want only a short-term rental. Single-family homes generally have the widest appeal. It can also be harder to get a mortgage on a condo. How much it costs to fix up a house is less important than what it will be worth afterward, says Voreis. Before the Zibleys closed on their townhouse, they got a home inspection, which turned up a few things the seller fixed free. That means you put down as little of your own money as you can, borrow the rest and let the tenants pay the mortgage, says Voreis. Being successful can mean different things to different investors.
There are many ways to find good deals, but one oft-overlooked tactic is boosting returns to make an okay deal better. Glad you asked! Here are these eight creative ways to earn more money from your rentals; some work better for multifamily properties, others for single-family rentals, while some are expensive and others cheap and simple. Leasing furnished and semi-furnished properties let you charge more for rent. Renters will expect that other people will have used the furniture already, so you can buy used furniture. Furniture does not hold its value well, which is great news for anyone buying used furniture — you can buy beautiful pieces for a tenth of their original cost. But many people enjoy the challenge and fun of interior decorating, and when in doubt, just buy best options for making money off a rental property in black, or shades of brown. What about landscaping or lawnmowing services? All you need do is arrange a profit-sharing agreement with a local housekeeping, landscaping or pool service. Often these can be arranged with individual service providers, rather than full-blown local companies. Matt Nagy of parking creativity above has seen good results from lawnmowing and pool services.