Passive Profits: Do It Once and Profit Forever - More Rental Income

Profit Analysis

Research all potential investments to ensure you’re spending your money wisely. Many people treat investing like gambling. However, if you do your homework, it will be far from a coincidence if things turn out well.

Take these factors into account:

1. The median home price in your area.  Simply, this is a home priced in the “middle.” Half of the homes in the area are more expensive and half are less expensive. In most cases, the best rental homes will be 30-75% of the median home price. This information is readily available.

2. Check the average amount of rent for different priced properties. Look at the different price points and make some comparisons.   

3. Figure out the cost per unit for different multi-family properties. Look at different price-points and calculate which type of property will be the most profitable to rent.

Getting a Good Price

Nearly any property can become a good rental opportunity if purchased at a decent price! If you’re looking to purchase a rental property, the keys are to know the price you want, ask for it, and be patient.

Be prepared to shop around and make many different offers. Someone out there is waiting for you to come along and buy that property. Even if you offer less than the asking price, someone will eventually say yes. A lower price means a greater cash flow and more equity.

Advertise and seek out properties. The best deals usually aren’t advertised. Call the “for rent” ads in the paper and ask the owner if they’re interested in selling. Place an ad stating that you’re looking to buy a rental property. 

You can usually find a property at 65% of the fair market price if you look hard enough.

Finding Tenants

One of the keys to success is finding good tenants. Most of the horror stories you hear about rental properties are the result of unfavorable tenants.

The ideal tenant will have the following attributes:

1. Verifiable and sufficient income. Your tenants need to have a money source so they can pay the rent on time each month.

    

     
2. Good references. Good tenants leave a trail of happy landlords. Check with the last few places they’ve lived. Be most concerned with payment history and the condition of the property after they moved out.

    

     
3. Meet and get a good feel for them. Do you get the impression they’ll be reliable and trustworthy? Follow your intuition when you meet potential tenants. 

    

     

Long-Term Considerations 

Contemplate these options:

1. Continue renting the property. After the mortgage is paid off, you can keep renting out the property. But now all the money will be yours.

    

     
2. You can refinance. Some landlords like to refinance their properties and pull the equity out. You can then invest that money and you’ll still have the rental income.

    

     
3. Sell it. Depending on the housing market, the time may come when selling is the best option. You can then purchase more properties when the market falls again.

Other Items

You’ll likely require the following supports:

1. An attorney. Attorneys can be invaluable when purchasing real estate, and even more so in dealing with tenant issues.

    

     
2. A tax expert. Since rental properties can create some unique tax issues, it’s a good idea to consult a professional that deals with taxes. For example, you probably aren’t able to deduct your mortgage interest. However, you can deduct the depreciation of the building, but not the land.

    

     
3. Real estate investors club. You’re almost certain to have at least one real estate investors club in your area. The club members can provide a wealth of information, including great references for a lawyer and tax accountant.

Real estate can be a great way to generate a relatively passive income. When you own property free and clear, there’s a lot of money to be made.

"Well, real estate is always good, as far as I'm concerned."

- Donald Trump

We'll continue this article next week with "Dividends, Pensions, and Other Interests."

If you missed any other parts of this series, just click below to find them.

Passive Profits: Do It Once and Profit Forever - Rental Income (Part One)

Passive Profits: Do It Once and Profit Forever - More Rental Income (Part Two)  YOU ARE HERE

Passive Profits: Do It Once and Profit Forever - Dividends, Pensions, and Other Interest (Part Three)

Passive Profits: Do It Once and Profit Forever - Conclusion (Part Four) 

Now go and grow! 

Michelle R Russell

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