Getting your first rental property is a big step. Experienced investors say that the first one is always the hardest. As you gain experience, relationships, and capital, subsequent properties become much easier.
But whether you have one real estate property, 10 rentals, or 100 units, it’s important to take steps to secure your rental income. After all, you went through all the work to get the property, fix it up, and rent it out. Now you want to ensure that your properties, and the monthly income they provide, last forever.
That’s the key to truly passive income and long-term wealth generation.
So what can you do to ensure your rental yield continues without a lot of effort on your part? Keep reading to learn how to invest in real estate the right way.
Get a Low Rate to Maximize Rental Income
One of the most important ways to secure your monthly rental income is to get a good mortgage on the property. By getting a low-interest rate on your mortgage, you’ll be paying less out of pocket every month to your lender.
This can increase your monthly cash flow by a fair amount. To do this, it helps to have the best possible credit score, consistent employment history, and reserves in the bank.
The better you look as a borrower, the lower your rate will be.
Having a low rate is also important for market downturns. During certain seasons, rents may decrease as the economy falls. If you have enough cushion in your cash flow, you’ll be able to weather any financial storms that befall the real estate market.
Maybe you can’t get a low rate right now, simply because the market is hot and rates are high. They will eventually come down, with 2% to 3% being a good rate to aim for.
If rates drop this low, it’s probably worth it to refinance for a lower interest rate.
Get a Good Deal
Aside from qualifying for good financing with low-interest rates, you also want to ensure you get a good deal on your properties. It’s important to always run the numbers of any property you consider buying.
You need to know that the property is going to cash flow every single month. You also want to buy in a market where rents are likely to increase, rather than stay flat.
As rent increases, your mortgage payment will stay the same, increasing monthly cash flow over time.
Urban areas are usually the best opportunities for higher rent prices over time. If you can get a property in a city like Chicago, you’ll get to enjoy appreciating rents for years to come. Many people are always moving into the city, increasing competition for rentals.
Check out urbchicago.com to find some of the best properties available in the city.
As soon as you buy a new rental property, you need to get it insured. A good insurance policy will protect your asset for years to come. So even if you have a bad tenant, or fall victim to an accident or a natural disaster, you’ll be covered.
Having to pay for major expenses out of pocket can ruin years of profitability. Likewise, having to pay for a lawsuit because your property caused harm to your tenants can do the same. That’s why it’s key to have insurance in place and factor it into your monthly expenses.
You can also require your tenants to have renters insurance in place. That way, if they do something that causes damage to your property, their insurance policy will cover the cost of repair, rather than yours. This means no money out of pocket for you, and no increase in premiums as a result of filing claims.
Write a Good Lease
Your lease agreement is very important. How it’s written can either put your rental income at risk or keep it safe and secure.
Downloading a free lease template online might not be the best idea. Rather, it could be worth it to work with an attorney to draft a lease agreement that is specific to you, your goals as a landlord, and your market.
Certain leases may work well for some markets but not others.
The benefit of working with an attorney is that you can create one customized lease agreement that you can use for all of your properties. So you won’t have to draft a new one up each time you add another rental unit.
Be a Good Landlord
When it comes to rental real estate, the biggest loss of money is a vacancy. When you’re tenants don’t stick around for a long time, that means your property sits empty for a month or two in between tenants.
If you can learn how to limit vacancies by encouraging tenants to stay for many years, you can guarantee monthly income for a long time.
If you’re managing the property yourself, that means being a good landlord. Be available. When you receive calls or texts, respond quickly.
Get issues taken care of promptly. And make it easy for tenants to pay you by using a virtual rent collection platform.
It helps if you can make upgrades to the property before renting it out. An updated kitchen or bathroom goes a long way to tenants’ happiness.
Hire a Property Manager
Managing your own properties can be a good experience. But as you start adding more properties to your portfolio, being a landlord becomes a full-time job.
When you don’t enjoy being a landlord, you get lazy, and you create a bad experience for your tenants. For investors with multiple properties, it’s usually worth it to hire a property management company to handle the day-to-day operations.
Doing this allows you to sit back and enjoy your automatic rent collection. It also allows you to spend your time finding new days rather than managing your existing ones.
Multiplying Rental Income
Rental income is one of the greatest sources of passive income that exist. If you do it right, it will always come in. And if you have enough rental units, that monthly income can cover all of your personal expenses, making for a comfortable retirement, or even early retirement.
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