Owning rental properties is a great way to earn passive income as an entrepreneur, but it takes some time to get started. That’s because, to transform a house or apartment into a rental and reach the point at which you can be a remote landlord, you have to do a lot of labor, including renovations, advertising, and resident screening. It’s a big job.
If you’re trying to make the transition from property purchase to passive income, these 4 steps will help you ready your rentals for hands-off management. Though the initial financial outlay and labor is extensive, rental properties can be a source of income for many years to come.
Establishing your rental properties can be an expensive process, so do your homework before you dive into the purchasing and renovation process. One common mistake that new buyers make is purchasing homes that need to be flipped and then pouring more money into that property than they would have if they had just bought a turnkey property in the first place.
If you have the skills to renovate an older property inexpensively, then buying an older home may be a great call. After all, turnkey properties are more expensive to begin with – you’re paying top dollar to avoid extra work. On the other hand, if you need to hire a professional to do your renovations, or if your chosen property needs major work such as rewiring or updated plumbing, turnkey properties may ultimately end up being less expensive.
Another key to successfully moving from purchase to passive income is starting out small. Though multi-family properties are appealing because they’re often more profitable – even if one apartment is being renovated, another can be occupied – single-family homes are easier to manage for new owners. They also carry a higher marketplace premium.
Once you have a profitable single-family home bringing in income, you can decide how and when to expand. That first property will provide the necessary profit to purchase and prepare subsequent properties, so take the time to establish it properly.
One alternative to purchasing a single-family home as a starter property is investing in a luxury apartment. This is a good strategy in urban areas where single-family homes are scarce and most people choose to rent. Renting is also undergoing a renaissance among millennials, so you’ll have a significant base to market the property to.
The ability to screen and select the best tenants is vital to successful property management, but it doesn’t come naturally. And though a background check and references can tell you a lot about a potential tenant, often it’s only real vigilance that allows you to differentiate quality renters from troublemakers.
As you work to master the tenant selection process, make a point of regularly inspecting the property. Problem tenants can quickly destroy a residence, staining and marking up surfaces, punching holes in the wall, or even rewiring the electricity – just ask any experienced landlord. Good tenants, on the other hand, maintain a balance between making themselves at home and respecting the fact that they don’t own the property.
Once you have trustworthy tenants in place, it’s finally time to take a step back and enjoy the passive income. Sure, you’ll have to be on call for emergencies like a broken water heater or a leaky ceiling, but by and large, you’ll be able to act as landlord from anywhere. You can even bring a property management company on board to handle maintenance calls and other crises; this can be especially valuable as your holdings grow.
There will always be intervals where, as a landlord, you need to step up and take on a greater role in property acquisition, renovation, and management, but once you have tenants you trust in place, the work is mostly hands-off, while being quite profitable. You just have to have patience in the early months (or even years). We promise, it will pay off.