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How do I Invest in Rental Property?

By Brendan McGuigan
Updated May 17, 2024
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Rental property, for those willing to take on the added burdens it entails, can be an excellent investment opportunity. When the real estate market is on the rise, especially, owning rental property can be an excellent way to invest in land over the long term, while having a steady source of income in the short term. When rents rise in an area, this can actually amount to a substantial gain in the long run, as income from rents outstrips mortgages and land taxes.

The first step to getting involved in rental property is to decide how involved you want to be. Are you interested in buying a single-family dwelling somewhere nearby? Maybe a duplex? A number of small rental properties? An entire apartment building? Or perhaps properties around the country, or even around the world? Depending on what you decide, you may need more or less help, in the form of contractors, property managers, and cleaning services. Generally it is a good idea to start with one small rental property, to learn the ins and outs of property investment, before expanding your operation.

Once you’ve chosen an area where you want to invest, start looking at properties that are available. Real estate agents will often mark properties that will make good rentals, and sometimes if you call, they will direct you to properties that are ideal for that purpose. Sometimes bargains can be had by watching for foreclosure auctions, as well, which can help you keep your initial overhead down, letting you start generating a profit as quickly as possible.

If you’re looking at investing in a rental property in a foreign country, make sure to consult with a lawyer who is familiar with ownership and rental laws in that country. While some excellent values can be found in other countries, which can make good investment properties, especially if rented to foreigners traveling, buying in another country carries a host of its own considerations and pitfalls. Make sure you are protected so that the land you buy can’t simply be taken away from you. Also be aware that most banks will be unwilling to finance the purchase of land in another country, so you may need to either go to that country for financing, have the cash on hand, or use an existing property for a second mortgage to finance the new purchase.

When you start to find properties that interest you, and start to get a good idea of the price range, it’s time to look at the local rental market. Call real estate agents who manage properties and inquire about rents, and check the local papers for comparable properties. Then calculate your monthly expenses on the property, counting in the mortgage payment, taxes, repair and maintenance costs, insurance, and the cost of paying a property manager, if applicable. If it looks like the property can be profitable for you in the long run, it’s time to go to the bank to get a loan.

Be aware that banks generally charge higher interest rates with less favorable terms for a rental property than they would for a property being purchased to live in. Once you have the property, do any repairs that need to be done to make it livable, and if you won’t be there to manage it yourself, find a reputable property manager who can handle it. Often real estate agents will handle properties on the side as an additional source of income, or your area may have property managers who handle multiple properties, and so can charge a more affordable rate.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.

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