Are you considering investing in real estate? If not, you should be. There’s no better time than the present to invest – particularly in single-family homes.
A combination of factors including a strong market outlook, low unemployment, and a shift in renter profiles has made single-family home investing the preferred choice for many property owners, regardless of their net worth.
If you’re new to investing or are purchasing your first single-family home, there are some things you should know. Keep reading for 4 things to consider before making an investment.
1. First, Determine Your Priorities
Before you invest in anything, be it bonds, stocks, or real estate, you first need to set some goals.
How much risk do you want to take?
If your goals are security and safety, you should invest in low-risk homes that are more likely to provide you with a steady, reliable stream of income. While these homes might not generate as much revenue, you’ll experience less volatility.
An example of this idea is purchasing a higher-cost home located in a good school district.
On the other hand, if you’re looking for a higher yield and are interested in taking on more risk, you might opt for a lower-priced home. This is also a good option for those looking to make long-term investments. You’ll assume more risk but you also have the potential for more reward.
2. Slow and Steady Wins the Race
It’s important to understand the true goal of investing in single-family homes.
It’s often said that real estate investing is a marathon and not a sprint. The goal is to build long-term wealth. This won’t happen overnight.
There is a lot of buzz about flipping houses and we don’t doubt you’ve seen one of the many tv shows where someone buys a house, fixes it up, and flips it quickly for a profit. This can be done, but it will only earn you a one-time profit.
This is the wrong way to approach your investment. You should treat your investment property like a nest egg.
It’s also important that you look at your rental property as a big picture. It’s easy to get caught up in short-term changes in your portfolio.
Perhaps soon after you purchase your property your tenant moves out suddenly. This happens, but there’s a good chance the next tenant will live there for years.
You want to evaluate your property over the years. You’ll see that the investment will be well worthwhile over time.
Remember why you chose to invest in single-family homes. They tend to appreciate more than any other type of real estate property, making them the best choice for many investors. The increased market demand is responsible for the high rates of appreciation.
3. Consider Hiring a Property Manager
As an investor, you have to be able to separate investing from the operations of your properties. One of the most convenient aspects of investing in single-family homes is that you can hire a property manager to handle the operations.
This can save you a lot of time and even money in the long run. Property management companies handle the daily tasks involved in renting a property. These include collecting rent, repairs, maintenance, and leasing.
Property management companies use technology and business strategies to effectively manage investors’ properties. These professionals are experts in property management and will ensure your properties are leased, maintained, and that your tenants are happy.
Using a local property manager also allows you to purchase property in a variety of locations. Without a property manager, you’ll be limited to properties nearby as it’s difficult to self-manage properties that aren’t close by.
Another reason to use a property management company? To screen potential tenants.
Properly screening tenants will help you avoid many of the problems associated with investing in single-family homes. A property management company will run credit and background checks, make sure potential tenants can afford the property price and will ensure they are not engaging in illegal activity. This will eliminate a lot of risk on your behalf.
4. Be Open-Minded When It Comes to Location
The key to successful single-family rental home investing is owning cash-flow positive properties. Depending on where you live, this might mean investing locally isn’t in your best interest.
If you live in an area with high home prices, looking outside your primary location might bring the best value. For example, those in coastal locations might look for property further inland.
Another reason to consider expanding your investment property search is the concept of diversification. If your job, your primary residence, and your investment property are all located in the same location, you’re risking too much.
You want to avoid such concentrated risk and being so vulnerable to the whims of one local economy. You can easily diversify your portfolio by purchasing an investment property in a market outside of where you live with the help of a local property manager.
Getting Started Investing in Single-Family Homes
Investing in single-family homes is a great way to get started in real estate investing and generate a steady stream of additional income. Even seasoned pros can profit by investing in single-family homes.
If you’re looking to rent out an investment property, we are here to help. We are a real estate investment and property management company serving the Denver metro area.
We offer specialized knowledge and experience to oversee your investment properties and maximize your investment.
Contact us today to learn more about what we can do for you.