One of the most important reasons people become interested in maintaining single-family rental homes is the appeal of a “passive” income stream. However, investing in rental real estate isn’t exactly passive: it takes work and dedication to find, buy, renovate, lease, and manage rental properties. The key distinction between working as a real estate investor instead of working as someone else’s employee is flexibility and a chance to build real wealth.
Although most employees are putting in hours just to get by, a real estate investor builds a portfolio that could pay off big over the long term. But what does it take to become a real estate investor? Let’s take a look at what rental real estate investors do day-to-day.
Crunch the Numbers
One of the key things a rental real estate investor needs to know is how to accurately assess a potential property and calculate the probable returns on the investment. For example, not only will you probably look for properties that are below market rate but those that also have an After Repair Value (ARV) and an anticipated rental rate that will yield positive cash flows month to month. If you offer or pay too much, forget to include all of your expenses, or otherwise estimate incorrectly, you might end up with a property that will cost you far more than your time and trouble are worth.
Another important part of what it’s like to be a rental real estate investor is negotiating deals each time you buy a property. Investing in rental properties means paying money, and if you don’t have enough cash on hand to purchase the property outright, you’ll need financing. Few sellers will be interested in negotiating with any buyer, including investors, who don’t have their financing already lined up.
You must have good contacts with traditional and alternative lenders since many conventional lenders hesitate to make loans on multiple investment properties. You also need a great real estate agent on your team who can help you determine how to offer an attractive deal to the seller. Once you find that bargain property, you’ll need to move fast and have everything ready to go to close the deal.
Obviously, the search for great deals is a lot harder than it sounds at first. Therefore a big part of a real estate investor’s job description is developing leads. Building wealth depends on buying and owning rental properties that yield positive cash flows and healthy appreciation. And much of this depends on first finding below-market deals on new properties. You’ll need to know where to get in touch with motivated sellers or know people who can help you with that, including local real estate agents and Dane County property managers. You also need a strong public presence, marketing, and a website to get the word out that you buy investment properties so that eventually, homeowners in distress or who need to sell immediately could start coming to you instead of the other way around.
Renovate and Lease
After all, buying a rental property is just the start of what a rental real estate investor does. Following when the sale closes, it’s time to renovate and repair the property and get it ready for tenants. While you may be able to find a virtually turn-key property, in most cases, any investment property you buy requires at least a good cleaning and a quick spruce-up, or at worst, some serious renovation work and repairs.
One way or another, you’ll need to have a good contractor and contacts with other home service vendors ready to get started or the time and skills to do the work yourself. Take some time to list out which renovations will provide the best return on investment. After that, you will market your property, evaluate prospective tenants, prepare lease documents, and decide on a property management process.
If all of this sounds like a lot of work, it is! But the difference between putting in work on an investment property versus putting in work as someone else’s employee is that as an investor, you reap all of the rewards of your time and effort. Of course, there are ways to ease the workload and streamline many aspects of the job of a rental real estate investor.
One of the best of these is to hire a quality property management company like Real Property Management Greater Madison Metro. Not only do we provide comprehensive property management services, convenient online rent payment, and proactive property maintenance, we also help assess potential properties and help investors find off-market deals. Contact us online today to learn more.
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