There is a nationwide shortage of rental properties right now. At the same time, people are struggling to buy since interest rates are high and the prices are astronomical. This makes it an ideal time to think about buying rental properties as an investment. If you are wondering if you should invest in stocks or become a landlord, then you need to know what being a landlord entails.
You can make passive income from rentals but you do need to understand a few things first. There are some situations when you buy a rental property and being a landlord can be quite time consuming. Other ways exist to make it passive so we will discuss those things in this article.
Know the market
The most important thing is to figure out what is needed by the market in a particular area. For example, if you buy real estate in Florida, then your best bet might be to turn it into an Airbnb property for short term lets. This is because there are a lot of tourists there and hotels are very expensive. This would be an opportunity for you to make good money without worrying about having bad tenants that are hard to get rid of.
Buying in a city like Boston will mean renting out to students that come every September and leave every May. Or, depending on the neighborhood where you buy you may be renting out to people working in corporate jobs that are there long term.
The point is that every area has a market that needs to be understood so you buy the right type of property and have the right plan for it.
Do the calculations
To truly have a passive income from a rental, you’ll need to have a company do the managing of the property. They will find tenants, take care of maintenance and all the paperwork so you don’t have to do anything. This is for a price, however.
This means that you have to understand how much it will cost for your mortgage and other expenses such as tax and insurance every month. Then, make sure to understand what the going rate is for rent for that type of property in your area. When you subtract your expenses from the rental income, the rest has to cover the cost of the property managment company.
At this point you have to determine if you think whatever is left after paying all of those things is worth it.
Buy more property
To scale up your income you’ll need to have multiple properties. One property will be decent if you are using it as more of a way to park your savings and protect them. However, if you are looking to make passive income then you should have multiple properties running.
The key is to have a few different types. Some should be short-term rentals and some should be long-term with regular tenants.