Deciding to invest in rental properties can be a great idea. However, there are quite a few things you should know about if you want to be successful. Although rental properties can bring in very interesting returns, too many people still overlook them.
Firstly, you need to find a good return. Real estate is an illiquid asset that requires you to minimize on your liquid assets. You need to strive to get a return rate that is the same as what it was on your liquid assets. Basically, you must find good cash flow properties, not money pits.
If you use this knowledge and apply it to real estate, you need to look for cash flow rather than appreciation. Cash flow is what actually comes into your bank account from your rental properties after you have met your financial obligations. If you can, try to leave your cash flow alone in a bank account to create significant savings. Additionally, as your rent goes up over time, so will your cash flow. This is particularly true if your mortgage payments stay the same. The best cash flow is at least 20% of your overall income from the property. Make sure you take advantage of the online availability of cash flow calculators.
You can also decide to look into a real estate investment trust (REIT). Although this means you don’t need as much money to get started, it also means the returns are smaller. REITs are popular because you are essentially investing in real estate corporations. Through a REIT, you can invest in anything ranging from an industrial park to a shopping mall. A REIT is also listed on the stock exchange and NASDAQ. A REIT can be best compared to a mutual fund, although the REIT invests solely in real estate. There are a few things to think about, however. Consider the key holdings’ economic conditions for starters. Also, you should look into how the REIT has performed historically. Also look into their future plans. Also find out who the REIT is managed by and what their experience is. Lastly, you need to look into the current state of the real estate market and how the REIT is expected to respond to that.