Navigating the best route to creating a reputable real estate portfolio can be difficult. While hindsight is 20/20, it’s far better to reach that point in your career as a real estate investor without many regrets or missteps. As experienced rental property managers, we understand some of the potholes that would be better to avoid and we’re totally willing to guide new investors into the business. Check out our previous blog to find out more about our initial tips for starting your portfolio and read on to find out more about entering the passive income race.
Find Your Demographic
Calculate your demographic based off of a couple of criteria. Ask yourself whether you’re looking for a posh neighborhood or if you’re fine with something a little rougher around the edges and then compare that to the price people are asking for those units. Once you’ve got a reasonable idea of what the rent will be on each unit you can calculate your profit margin and how much room you’ll have repairs while still collecting a significant ROI. The other piece you should consider is what kind of people that this demographic holds. If you’re interested in young families or single yuppies you’ll need to be sure there’s a steady stream of those people in the area so that you aren’t worrying about vacancies, but you also aren’t changing the sort of people you’re marketing to at the last minute. Ensuring your target market, price point, and location all fit into your equation will ensure long-term ROI and repeat renters with good credit and a good track record.
Once you get a sense of what the initial investment will be for this individual endeavor, you can decide whether you’re interested in paying cash or financing instead. According to today’s financing guidelines you’re allowed to put around 20% down on rental properties when you own less than four. That percentage jumps slightly when you own more than four rental properties to 25%. While cash is great for staying debt free, you’ll be able to buy bigger multi-family residential properties if you finance with that money instead. You could even invest in more of them, rather than a bigger one so that you finance dollar goes even further. With current low-interest rates, financing might be the better option, and it won’t necessarily cut into your profit margin if you structure it correctly.
What kind of location do you want to invest in? It should probably be an area that is a hot place to live in, but generally attracts younger families or tenants that pay their rent on time. If you’re looking for a great rental, look for a couple of defining factors first as they’ll already attract families into that area and they’ll be more likely to stay in your rental, so there’s less turnover. One of the major motivators to move to an area is school. Try to get into the second best elementary school district because it’s hard to tell where the range of the high schools will end. If a family moves into an area, they’ll likely stay there for the advantage of not moving their kid too many places for their early school career. With elementary school lasting six years, that means you’ll have a guaranteed tenant for six years. The next determining factor is a great neighborhood. Accessing a property that’s central or close to downtown but not too close to have high crime and close to cute, bedroom communities you’ll always have renters.
When you’ve picked out your new residential rental property, contact us. As the premier rental property management company in Broward County, we’re eager to add you to our list of happy customers.