Many people are becoming interested in the idea of passive income, and real estate can be a strong passive source of income. But before you dive in and buy a rental property, here are some things that you need to do in order to be successful.
Look for Young Renter Communities
If you want to start a rental business, you need to make sure that there is a strong market for rentals in your area. Many cities are great for landlords, while more suburban areas may be geared towards families who aren't looking to rent. You can look at population density statistics to see how in-demand your area is. In some high density areas, you may be able to stretch your property even further by turning it into a room rental house, where multiple adults rent out parts of your property.
Calculate Your Finances Carefully
Some passive income real estate businesses will fail because the buyers failed to account for all of the different expenses that would come with the property. Along with the monthly mortgage, you will have to deal with repairs, taxes, evictions, and sometimes vacancies. Consult a financial planner to help you see what you would really be making on the property, since your goal is to have a positive monthly cash flow.
Look for Long Term Renters
Sometimes, you can make a lot of money with vacation properties and short term rentals. At least, the amount that you can charge per day is often higher. However, when you have to constantly market and find new occupants, your costs can go through the roof. This isn't to mention the extra service that you would need, such as regular cleaning services. If your goal is passive income, stick with residential properties.
Outsource Your Management
For a truly passive income stream, you will need to have someone to manage the monthly operations such as collecting rent, finding and screening new tenants, doing property upgrades and coordinating monthly services. Rental property management companies are a solution for landlords who want to be completely hands-off with their rental properties. Do thorough business investigations and research company policies so that you feel comfortable leaving your property in the hands of a third party.
Starting a passive income rental business is a lot of work, since there are many pitfalls that you have to be careful to avoid. A management company (such as Advanced Property Management) and a financial advisor can help you to plan for success in your rental endeavors.