CHAPTER 11 A Guide to Investing in R esting in Rentals
Rentals are another great way to earn a profit. Let’s take a look at the benefits and risks associated with this type of real estate investment:
FINDING THE RI G THE RIGHT PROPERTIES
There are plenty of different kinds of rental properties to invest in. The first decision is whether you’re interested in commercial or residential properties. If it’s the latter, do you want single- family homes, multiple-unit homes, or apartments? We’ll get into the details of these different types of properties in a little bit. But regardless of whether you’re planning to rent out a condo or a strip mall, it’s important not to look for the cheapest properties. When it comes to rentals, this isn’t necessarily the right strategy. You should be more concerned about how much money you can make with the rental. Figuring out the potential profit involves looking at the homes in the area and conducting a comparative analysis of the amount you can expect to get in rent. Once you’ve got that, look at the property you’re considering, and calculate all your potential expenses, including mortgage payments, insurance, property taxes, utilities not paid by renters, maintenance, and repairs. Is the amount your renters will pay greater than all these expenses? One method people use to answer this question is the “One Percent Rule.” This means that the amount you’ll get in rent before expenses is at least 1% of the purchase price. In other words, if the home is $100,000, you can rent it out for at least 78
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