The people that become interested in real estate investing usually do so after purchasing their own home. It is not uncommon to start out as a “small investor” in residential rental units and expand into more complex ventures, but often, just an inventory of residential units can provide substantial supplemental or even primary income.
The residential rental business is a simple business to start and operate, but of course, getting legal and accounting advice before launching the operation always is advised.
While we say the residential rental business is “simple,” it is more complex than just owning your own home and comes with a level of financial risk, social responsibility and the need for good management skills.
WHERE DO I START? Step one is to identify and evaluate a property that meets your requirements, then purchase it. Avoid the mindset the cheapest property is the best to purchase and focus on property in very active neighborhoods where there is a mix of renters and homeowners.
HOW DO I GET IT FINANCED? Unlike buying a house to live in, purchasing residential rental properties for your portfolio is not as easy as getting a VA or FHA loan, although there are some FHA investor programs available.
As a rule, a local banker may require a strong down payment on the purchase of investment property simply because of a higher risk than an owner-occupied purchase. An existing relationship with a local lender goes a long way in securing financing and could result in some very attractive terms.
The best advice here is to work with a local lender. You will need them when you move on to property two and so on.
HOW DO I MANAGE MY PORTFOLIO? In the early stages of building your real estate investment business, it is best to hire a specialized property management company. Factors such as determining market rent, tenant acquisition, dealing with maintenance issues, projecting future expenses such as taxes/maintenance, lease signing, security deposit accounting, and monthly profit and loss accounting are a big distraction to an investor who is better served by looking at the big picture of adding units and financial planning.
In conclusion, since around 2010 the residential rental market has been consistently the strongest segment in the overall real estate sector and is a perfect fit for the investor with a long view and is adaptable to active participation in real estate investments.
In Hardin County and in most places across the country, there typically is a waiting list for those seeking good rental units and those units take the form of apartment buildings, duplexes, single-family homes, short term housing, manufactured housing communities and even RV parks.
T.W. Shortt is past president of The Heart Of Kentucky Association of Realtors and broker at Realty World Knox Realty Group in Radcliff.