Anyone who has dropped a rent check in the mail has likely asked themselves the same question: What would it be like to be the person cashing rental payments instead of making them? Renting out a property to tenants is one way to invest, but if you want your rental property income to be as passive as possible, you need to be strategic about it.
1. Don’t buy a fixer-upper.
Flipping houses is one way to invest in real estate, but it takes a lot of work. As much as you may be tempted by a fixer-upper that’s a good deal, if you want your income to be passive, you’ll want to buy a home that’s in great condition, inside and out. A property that looks a little rundown cosmetically could also be hiding structural problems that will wipe out your profits. And besides, tenants will seek discounts, refunds, or even damages if a home’s issues make the place inhabitable.
Avoid buying a money pit by hiring a team that includes an inspector, structural engineer, electrician, and plumber to check the place out before you invest. They will be able to diagnose any and all concerns according to their specialties, giving you peace of mind.
2. Make a larger down payment.
Sure, you could put the minimal amount down on a rental property, but that could result in a less ideal mortgage rate, and you’ll be paying off the loan for longer. If you have enough saved up and are able to swing it, putting down upwards of 40 percent will pay off in the long run. You’ll save money on interest and have a shorter payment plan. This means your rental property income will become all profit sooner.
3. Rent out individual rooms.
Though less common than renting out a whole unit under one lease, there are advantages to renting individual rooms. Not everybody wants to lease an entire home or apartment, but can’t afford an entire studio of their own. Enter the next best thing: a place with rooms for rent. You can offer furnished or unfurnished rooms, and can appeal to tenants looking for short- or long-term stays. And the best part? You can often make more rental property income more per room when you’re renting them out separately.
4. Buy rental property in a college town.
When you’re a landlord, there’s no market quite like college students. New arrivals join the hunt for places to rent every year. Many have secondary sources of income in their parents, and they often buddy-up to split rent, meaning they can afford to pay more per unit. If you’re nervous about renting to students due to hot-plate infernos or wild parties, one way to ensure you are taking the safe route with this is to get a parent or guardian to guarantee rent and co-sign the lease.