How to invest in rental properties like a pro
Investing in rental properties can be a lucrative venture. It offers both short-term returns and long-term wealth building, and it’s a smart way to add passive income to your overall portfolio. Rental properties are generally inflation-resistant and not quite as volatile as stocks. However, it's not without its challenges and risks. So, before you get started, it’s important to do your research. Understanding the investment property landscape, along with your objectives and goals, is key to your long-term success.
Knowing how to accurately evaluate properties, manage them efficiently and effectively grow your income will better prepare you to become a successful investment property owner for the long haul.
Choosing loan options that best fit your goals
The type of financing you choose to fund your investment property will have a big impact on your risk versus reward. Fully understanding your loan options will be a smart step in the right direction. For decisions like these, it’s usually best to define your goals, do your research and then decide which option fits your needs.
Here are a few ways to get the most bang for your buck.
MaxInvest*
Our MaxInvest loan program is designed to help any buyer who’s investing in property by making the process smoother and the terms more favorable. MaxInvest offers a streamlined approval process that could put the keys in your hands — and rental income in your pocket — incredibly fast.
Cash-out refinancing **
This option is a smart way to turn your home’s equity into a down payment on your investment property. It allows you to access cash quickly by borrowing against your home’s equity.
HELOC***
One of the biggest advantages of owning a home is the ability to access its equity. Tapping into your equity gives you an open line of revolving credit that you can use for your investment properties. Our HELOC (Home Equity Line of Credit) allows you to access your equity as a line of credit to pull from whenever you need it.
How to evaluate properties
Understanding how to accurately tell the difference between a good property and one to avoid is critical to growing a profitable investment portfolio. Start by looking for properties that match your budget and investment goals. Consider factors like location, neighborhood quality, property condition, rental potential and amenities. A property with good access to transportation and schools tends to attract tenants more easily.
It’s important to know the vacancy rates and predicted growth of the area, along with the common property rule investors follow, called the 1% Rule. The rule states that your property should be able to rent for at least one percent of the total value of the property.
If all of this seems overwhelming, don’t worry. Correctly evaluating properties is a skill you learn. As you continue your journey, it makes sense to choose experienced partners like real estate agents who understand each aspect of the buying process and can help guide you along the way.
Managing properties
Once you’ve purchased your property, it’s time to decide how you’ll manage it. Unlike other investments, while the income might be passive, the management of the actual property will not be.
If you have multiple properties, you might want to consider a property management company. If you don’t have the experience, time and trusted vendor list to properly manage them by yourself, it could be more than just a pain - it could cost you revenue. Choosing to hire a property management company can create time and money-saving-efficiencies over the life of your investment.
Owners who choose to manage their own properties generally deal with higher vacancy rates, poor tenants due to lack of screening and lower revenue because of unexpected overhead and more.**** If you decide to self-manage, prepare for responsibilities like tenant interviews, rent collection, maintenance and emergency repairs.
Ways to turn a profit on your property
Choosing the rental properties that best fit your goals is essential to reaching your overall investment objectives.
Short term vs long term rentals
Short-term rentals often command higher nightly rates, especially in popular tourist destinations or during peak seasons. With a smart marketing strategy, you can attract travelers and maximize occupancy rates, leading to increased rental income. However, short-term rentals require more active management and may be subject to local regulations and zoning restrictions.
Ultimately, short term rentals may provide higher income but will require more time and energy.
Long-term rentals can provide steady income since they generally offer longer leases and allow your properties to appreciate. Long-term may bring in lower income but can provide stability to your investment property goals.
The downside of longer-term rentals is extended vacancies, lack of liquidity and maintenance and repairs.
Single-family
As a stand-alone property that generally accommodates one family, a single-family property is relatively easy to manage and has a low vacancy rate. Due to higher costs, however, any vacancies can considerably affect your cash flow.
Small multi-family buildings
Small multi-family buildings such as duplexes and triplexes, feature connected walls, unlike single-family homes. These properties offer several revenue streams and can provide much more income than a single family.
Large multi-family properties
These properties are generally apartment buildings, townhouses or high-rises, and much like the small multi-family, these structures can provide higher revenues.
Vacation rentals
Designed for short-stay travelers, these can be single or multi-unit buildings. It’s important to note that revenue can be seasonal, dependent on location and you could face some competition in signing renters. However, since they’re rented on a weekly basis, revenue can be higher.
Commercial properties
Focused solely on businesses, these can provide higher revenues and longer lease terms. However, market fluctuations can have an outsized impact. Also, the startup costs to secure these are much higher.
Conclusion
Investing in rental properties can be a great way to build wealth and generate passive income. But before you begin, be sure to do your homework and define your goals — and once you’ve started, stick to your budget. Following these basic rules will increase your chances of a rewarding venture.
*Eligible for fully amortizing fixed rate and adjustable rate mortgage (ARM) financing on non-owner occupied properties as a purchase, rate and term or cash out refinance. Additional loan and property type restrictions apply. Max loan amount $2M, minimum down payment starting at 20%. FICO score and debit to income requirements apply. Optional Prepayment and partial prepayment penalties may apply where permitted by state and federal law and will be determined via a stepdown fee structure. Applicant subject to credit and underwriting approval. Restrictions apply. For more information about prepayment penalties go to: https://www.OriginPoint.com/resources/prepayment-penalty
**Cash-Out Refinance Using funds from a Cash-out Refinance to consolidate debt may result in the debt taking longer to pay off as it will be combined with borrower’s mortgage principle amount and will be paid off over the full loan term. Contact OriginPoint for more information.
***OriginPoint home equity line of credit (HELOC) is an open-end product where the full loan amount (minus the origination fee) will be 100% drawn at the time of origination. The initial amount funded at origination will be based on a fixed rate; however, this product contains an additional draw feature. As the borrower repays the balance on the line, the borrower may make additional draws during the draw period. If the borrower elects to make an additional draw, the interest rate for that draw will be set as of the date of the draw and will be based on an Index, which is the Prime Rate published in the Wall Street Journal for the calendar month preceding the date of the additional draw, plus a fixed margin. Accordingly, the fixed rate for any additional draw may be higher than the fixed rate for the initial draw. This product is currently not offered in the states of New York, Kentucky, West Virginia, Delaware and Maryland. The HELOC requires you to pledge your home as collateral, and you could lose your home if you fail to repay. Borrowers must meet minimum lender requirements in order to be eligible for financing. Available for primary, second homes and investment properties only. Dependent on minimum credit score and debt-to-income requirements. Occupancy status, lien position and credit score are all factors to determine your rate and max available loan amount. Not all applicants will be approved. Applicants subject to credit and underwriting approval. Contact OriginPoint for more information and to discuss your individual circumstances. Restrictions Apply.
Your journey home begins here.
OriginPoint's Same-Day Mortgage (aka “FastTrack”) promotion offers qualified customers who provide certain required financial information/documentation to OriginPoint within 8 hours of locking a rate on a mortgage loan the opportunity to receive a loan approval within 1 business day of timely submission of documentation and does not suggest that the borrower will receive funding on the same day as their application submission. For purposes of this offer, documents provided after 1 pm local time or on a weekend or company holiday will be deemed submitted the next business day. OriginPoint cannot guarantee that a loan will be approved or that a closing will occur within a specific timeframe. OriginPoint reserves the right to revoke this approval at any time if there is a change in your financial condition or credit history which would impair your ability to repay this obligation. Read and understand your Loan Commitment before waiving any mortgage contingencies. Borrower documentation and Intent to Proceed must be signed within 8 business hours of receipt. Not eligible for all loan types or residence types. Minimum down payment requirements apply. Self-employed borrowers and Co-borrowers are not eligible. Not all borrowers will be approved. Borrower's interest rate will depend upon the specific characteristics of borrower's loan transaction, credit profile and other criteria. Eligible borrowers who successfully provide all required documentation within 8 business hours will receive a $250 Closing Cost Credit applied at closing, no cash value, and may not be combined with any other Lender promotions, discounts, or concessions. Not available in all states. Restrictions apply. Visit OriginPoint.com/same-day-mortgage for terms and conditions.
**Eligible borrowers must qualify for a "Clear to Close Loan Commitment" ("CTC”). OriginPoint cannot guarantee that a loan will be approved or that a closing will occur within a specific timeframe. CTC is subject to certain underwriting conditions, including clear title and no loss of appraisal waiver, amongst others. Not eligible for all loan types or residence types. Minimum down payment requirements apply. Property must be eligible for an Appraisal Waiver and borrower must opt in to AccountChek for automated income and asset verification. Self-employed borrowers and Co-borrowers are not eligible. Not all borrowers will be approved. Restrictions apply.
Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Restrictions may apply, contact OriginPoint for current rates and for more information. All information provided in this publication is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. OriginPoint LLC fka Guaranteed Rate Affinity, LLC does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error free. Some information in the publication may have been provided by third parties and has not necessarily been verified by OriginPoint LLC fka Guaranteed Rate Affinity, LLC. OriginPoint LLC fka Guaranteed Rate Affinity, LLC its affiliates and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action. OriginPoint does not provide tax advice. Please contact your tax adviser for any tax related questions.
