1. Buy At The Right Price
The downtrodden market of the past made from some stellar residential investment property purchases. Buy right, purchasing a single-family home, duplex or apartment complex with a low capitalization or cap rate to make the investment lucrative. The cap rate is important to understand and differs per property.
Before you even think about investing in real estate, it is important that you understand what a capitalization cap rate is and how it factors into the real estate investment purchase. A cap rate is a ratio of the annual net income to purchase price. The lower the operating costs, the higher the cap rate, so a high cap rate is preferable. Look for current average multifamily cap rate of 4.9 in Boston, for instance, but averages change with the real estate market. It’s more difficult to figure average area cap rates for four or fewer units.
2. Know The Rental Market
Owning residential investment property is still all about location, location, location, as the saying goes. Prior to purchasing, know the local market to ascertain if there is a demand for the type of rental property you are considering. Also, research the price range that will bring in renters. Lack of demand or too high a rental rate equates to long periods of time with no tenant and no income. Long-term unoccupied properties breed crime and appear run down, further keeping potential tenants away.
3. Keep Those Contacts
Have and grow your contact base. Always keep reputable contacts for building and maintenance contractors, real estate attorneys and accountants, and property management companies that will help you run your business smoothly with their services or counseling. Budget in those costs when calculating if the property is a profitable and wise buy.
4. Understand Landlord-Tenant Laws
Knowing your regional and local landlord-tenant laws can keep you out of the courts for noncompliance and various illegalities. Not only know the laws, but use them consistently on a daily basis with all your tenants, not just selectively on a few. Treating your tenants fairly and with respect is a great way to get to know them and keep the peace. Happy tenants are easier to deal with should a water pipe break or the heating goes out. Live by the letter of the law and reap the benefits.