Buying and Selling Rental Home Investments
Real estate is one of the easiest ways to start investing with little money, but that doesn’t mean you should go in with only a little knowledge.
Now, because buying and selling are on either side of the same equation, they have different dynamics. In this article, we’ll give you an overview of each of these transactions for the best outcome.
Buying a Rental Home Investment
Decide what kind of rental property you would like to invest in
After you weigh the pros and cons of becoming a landlord and determine it’s the right step for you, the first thing you should do is decide where to put your investment. While it might sound reasonable to diversify your capital, you’re better off finding your footing in one type of property before spreading your tentacles.
Each rental property has its unique benefits and drawbacks. Consider running a vacation rental if you’re not looking to be a full-time landlord but would still like to make decent returns. But if you’re looking for something more stable, you can choose from purchasing single-family houses or multifamily buildings.
Find support from the right professionals
Buying a house is a lot more complex than purchasing a loaf of bread at the store. You need to interact with several professionals at each stage of home buying, and for the best outcome, these professionals must be on your side. So start assembling a team of experienced professionals to be sure you get the best possible deal.
Some of the players you’ll need on your team are an expert local real estate agent that can guide you during the home searching process, an insurance agent that can offer you the best rates, and a real estate attorney to advise and oversee the legal aspect.
Investors have several options when it comes to financing a rental property, whether it’s your first or tenth purchase. As the famous saying goes, “cash is king”, so if you have enough savings, you can go ahead and pay for your rental property upfront.
However, if you’d prefer to use another means for budget reasons or otherwise, you have plenty of choices. The next viable option is to take out a mortgage through a conventional bank loan or a private lender. Alternatively, you could use your current home as a line of credit, as in a home equity loan. There are more methods to finance your rental investment, so feel free to weigh the options listed here or explore other possibilities.
Choose which property to buy
If you’re looking to make a successful investment, you should carefully consider which property to buy. Once you’ve determined what type of rental property to purchase, secured financing, and have a team of professionals ready to assist when necessary, you can start actively looking.
Avoid the pitfall of searching for houses like a homebuyer. You shouldn’t disqualify viable options because of your taste. Focus on how much repairs will cost and proximity to amenities like schools, restaurants, stores, and so on. Also, consider your expected cash flow while making room for taxes, maintenance, utilities, and other recurrent costs.
Selling a Rental Home Investment
Time your sale
Before listing the property you’d like to unload on the internet, you need to understand your local market. Although the real estate industry has recently fallen into a seller’s market (i.e., the demand for houses is higher than the supply), the market may vary depending on location, rental type, and other factors.
So it’s in your best interest to get the latest information and updates on the current economic and rental market health. While these aren’t a definite predictor of how successful your sale will be, they can offer some guidance on when the market is usually at its strongest or weakest.
Maximize your profits by adding value
Although spending money to add value to a property you plan on selling sounds counterintuitive, it could be a great way to earn some extra cash. A ready-to-move-in house costs more than one that requires significant renovation, even if the work may be minor cosmetic changes.
If you have a reliable contractor, you could get a discount and increase your profit from the sale. There’s no pressure to take on more than you can chew either; whatever renovation fits within your budget will boost your interest in the long run.
Take advantage of tax waivers
Some investors get blindsided by hefty tax returns once the sale of their house is complete because they fail to consider them. You should be aware and mindful of capital gains and other taxes you need to pay.
Did you know you could use a 1031 exchange to swap your house for one of the similar rental property types? Or that by living in a home for two years, you can waive up to $250,000 in fine? You could work with tax advisors to help you find other tax waivers and benefits.
Whether you’re investing as a buyer or making a sale, there are several things you need to keep at the back of your mind before getting into the real estate business.
As a savvy investor, you should consider a company to manage your investment and help you maximize the value of your rental property.