2019 is now riding into the sunset, and 2020 is on the rise. The year and decade may change, but one thing is still the same: residential real estate investing is one of the best investment strategies there is. Anyone can find and purchase the top-performing investment in the US housing market 2020 and become a successful rental property owner. So, do you want to know how to make money renting houses in 2020? Then read this blog to find out!
Or if you want a quick rundown, check out the video below.
1. Budget Appropriately for Your Investment Property
In order to make money renting out houses, real estate investors need to spend money on those properties. The first step to investing in real estate is to budget for an investment purchase. Appropriately setting a budget is the key to making long-term profits by ensuring that expenses are minimized and income is maximized.
Aspiring property buyers need to begin saving up cash and maintaining a high credit score. They also need to perform the necessary calculations to estimate the cost of purchasing and running rental properties. The best way to compute these numbers is to use an investment property calculator. A calculator, such as Mashvisor’s, provides investors with estimations and data to compute and predict real estate profitability trends based on the purchase price, financing costs, ongoing expenses, rental income, and occupancy rate.
2. Choose the Best Location
As a real estate investor, you should know the answer to the common question: What are the three most important things when buying rental properties? Of course, the answer is location, location, location.
The location of a rental investment property has the greatest influence on its ability to generate profit. For instance, an Airbnb rental strategy is more successful in tourist destinations as opposed to traditional rentals. Property prices, rental rates, tenant demand, and many other factors are also impacted by a property’s location. When studying a property’s location, the more specific the investor is, the better. Analyzing the neighborhood where the investment property is located is just as important as researching the city or county it is in, for example.
Related: 10 Best Places to Invest in Real Estate in 2020
3. Conduct a Rental Property Analysis
Once a real estate investor has found a rental property of interest, the next step is to conduct a rental property analysis. Also known as an investment property analysis, the analysis provides investors with information to understand the property’s estimated profitability and performance.
Mashvisor’s investment property calculator is all you need for a rental property analysis. The calculator computes outputs that depend on the investor’s inputs, such as mortgage payments and the type of loan. Then, the property’s profitability metrics (including rental income, cash flow, and return on investment) are projected. By accurately breaking down a property’s investment potential, real estate investors are able to maximize their ability to make money in real estate by renting houses.
Related: Rental Property Analysis: What You Need & Where to Find It
4. Secure Investment Property Financing
As previously alluded to, making money with rental properties requires spending money on the properties. This is particularly true with investment property financing.
A real estate investor’s budgeting comes into play when attempting to qualify for a mortgage. With conventional bank loans, investors need a high credit score, 20 percent down payment, cash reserves worth 6 months of mortgage payments, among other requirements to secure a loan. While these requirements are essential, there is one vital principle property buyers need to know when obtaining property financing. In order to make money buying and renting houses, investors need a financing method that does not put them at risk of foreclosure. The property’s rental income needs to be more than its sum of expenses, which include financing expenses. Be sure to take your time researching, learning, and analyzing your financing choices in order to find the safest and best method for your rental properties.
5. Pick the Optimal Rental Strategy
The next step to ‘how to make money renting houses’ is to pick the best rental strategy for your property. In residential real estate investing, there are two general types of strategies: long-term traditional rental investments and short-term vacation home investments, primarily Airbnb investments.
Objectively, there is no ‘better’ option that applies to all rental properties. In order to find out which strategy is optimal for a rental investment property, investors should consider a variety of factors. Location, as previously mentioned, is a significant factor. The rules and regulations surrounding the strategies are also important.
In order to learn which strategy makes a better investment, real estate investors should use Mashvisor’s rental property calculator. The calculator provides an accurate answer to this pertinent question for every listing on the platform using predictive analytics and trends.
6. Select the Most Efficient Property Management Method
Another important component of how to make money renting houses is its property management. Maintaining and running a rental property efficiently can be the difference between receiving a big bang for your buck or, in extreme cases, foreclosure notices.
There are two forms of rental property management: self-management and professional property management. Generally, a professional property manager is best suited when an investor has multiple properties or units, as in the case with an apartment complex. Self-management, on the other hand, is typically a viable option for a full-time landlord of a few properties. The choice will undoubtedly vary among investors. When selecting an option, consider its cost and effectiveness for your real estate goals.
7. Find the Right Type of Tenant
The final answer to ‘how to make money renting houses’ is selecting a tenant. Picking the right tenant heavily impacts a landlord’s rental experience. A good tenant will likely result in consistent cash flow, due to consistent rent payments and high occupancy rates. Long-term tenants, such as families and young professionals, in particular, are great for landlords. Before selecting a tenant, be sure to meet with the tenant, have the tenant fill out an application, and run a comprehensive background check and credit check.
Related: How to Pick the Perfect Tenant from Multiple Applications
So, can you make money renting houses in 2020? If you follow the guide provided above, of course you can! For more on how to make money as a landlord, we recommend you read Mashvisor’s daily blog.