Real estate comes in many forms — from multi-family units, shopping centers, storage units, industrial office buildings, to residential homes — varying in scale and price.

There are numerous financing and management strategies. This unique melting pot means that anyone, regardless of their financial plan, can start with a bit of savvy and a lot of innovative thinking. Anyone with access to off-market investment property deals can get a step ahead.

If you’re experienced, very familiar with each other, own multiple houses, and are ready to take a new step, then you should consider and invest in real estate rental platform development — says Slava Vaniukov, a real estate expert at Softermii.

In this guide, we’ll focus on residential single-family homes and how to purchase this type of rental property.

While we’re focusing on single-family homes, this plan can be adapted to many other types of rental properties with slight adjustments.

The key is to have an effective model and use that model to guide your plan. A good plan allows you to achieve your goals with minimal mistakes.

Before buying your first income property, you need to assess these ten things:

1. Property Type

While there are various types of properties, we’ll focus on single-family homes. Even within this domain, you can start with a personal property, meaning you live in it first, then rent it out when you move, or you can purchase a rental property, taking investing in rental properties in London as an example. This means it’s a rental property from day one.

In this era, it’s easier than ever for passive investors to invest in other types of real estate asset classes through real estate crowdfunding.

While investing in commercial real estate has always been an option for investors through REITs (Real Estate Investment Trusts), online platforms like Fundrise have reduced unnecessary intermediaries and significantly lowered fees (by up to 90%), bringing higher returns to small investors.

2. Local or Long-Distance

Being a local investor allows you to easily check on your property if emergencies arise. Investing in rental properties in your area makes self-management or overseeing a property manager more straightforward.

Long-distance investing allows you to invest in markets where the cash flow makes the most sense; not just your local market (e.g., Kentucky vs. New York City). You can live and work in California and invest in the Midwest, where your dollars go further and return higher.

If you want to invest in real estate outside your market and want a truly passive option, there’s a third choice: investing through an eREIT.

This method offers less control, doesn’t allow you to add value through hard work, but it is passive and starts with as little as $1,000. You can choose to invest in the West Coast, Heartland, East Coast, or choose an eREIT that has a variety of properties across the nation – and it’s 100% passive.

3. Focusing on Market Appreciation or Cash Flow

In some markets, like California, Washington D.C., or New York City, properties will significantly appreciate, and landlords can expect it.

Other areas, like Texas, Wisconsin, or small towns in upstate New York, are cheaper and yield higher cash returns, but the value of the house will never increase. When you sell the house, it will be worth the same as when you bought it.

4. Self-managing or Property Management

If you don’t want to do the day-to-day management, you’ll need to hire a property manager. In this case, the key to success is finding a trustworthy team member. If you’re concerned about how tenants manage and care for your property, you can always purchase landlord insurance to insure and protect your property at any time.

You need to be able to trust their judgment in selecting contractors and trust how they handle tenant affairs. They will be your everyday front person, representing not just you but also your money.

5. Real Estate Demographics

The key to buying a rental property is ensuring your demographics perfectly match. You want your proposed rent to match your demographics and the area you’re in.

For instance, a bad school district won’t attract the “young families with kids” demographic. Just as a great high school won’t attract 4 single guys looking for a party pad. Thus, it’s crucial that your house, demographics, and price point all match.

6. Cash or Financing

While paying in cash is great because you have no debt; if you finance a rental, you can buy a bigger property or more properties because you’re financing a larger amount. You also take advantage of today’s low interest rates.

Leverage can be an asset or a liability. Leveraging your properties means you can buy more properties with less money, but it also means you’re at risk.

7. Location (Schools, Neighborhood, House Size)

The key to successfully renting out a house is to have it in a prime location that rents quickly and attracts tenants who pay rent on time. Over the years, we’ve found that several characteristics help us narrow down such properties:

7.1. Quality Schools — Schools have always been key. We tend to buy in the second-best elementary district. High schools are too large, and people’s kids tend to be younger. Middle school is too short a time, only 3 years. For us, elementary is the sweet spot.

Elementary schools are from kindergarten to fifth or sixth grade. That’s at least 6 years in one place. So, even if the other higher schools aren’t as good, we buy a great elementary school.

Many people move when their kids are done with school, but they don’t want to move while their kids need to go to school. Here are four great places to look at school ratings:

7.1.1 GreatSchools

7.1.2 School Digger

7.1.3 Niche K-12 and

7.1.4 Local newspapers list local scores.

7.2. Good Neighborhoods — I usually look for the worst house in the best neighborhood. A lot of people are happy with my first house because location is important to them. They want that neighborhood.

7.3. Smaller/Cheaper Houses — Rent value does not increase with house size or price. From my experience, smaller houses rent for more per square foot than larger houses. Our small houses rent easier and faster than big houses. So, big houses don’t necessarily mean better returns. For our market and us, smaller houses return the best.

7.4. Don’t Over-Upgrade — You want the house to be nice, but you won’t get extra rent because the kitchen has a backsplash or you upgraded the cabinets/carpet, custom closets, etc. You want the house to be clean and nice, but you want to save money. Stuff will break, and you won’t get your money back.

7.5. Cul-de-sac/Quiet Street/Fenced Backyard — This is very important if you want to attract people with pets or small kids. All our houses that are not part of an HOA have fenced backyards. This is a huge advantage to attract these tenants.

8. Maintenance Budget

You must always check your numbers. From my experience, expenses are always vastly underestimated, and income is always overestimated. Always carefully check every number and make decisions based on conservative numbers, not liberal numbers.

Like any other business or venture, there are unforeseen events. So you must always be prepared for the unexpected. We had one rental that had no maintenance costs for almost two years. But within three months, we spent $4,000onanewbathroomand$3,500 on a new HVAC system.

So always be prepared, especially when things are going well. That way, you can weather the hard times better and with less stress.

To lower the renovation budget, we buy newer houses or ones that have been fully renovated. However, no matter what kind of house we buy, we always do a thorough inspection to know what it needs.

9. Buy a House That Has Rental Flow from Day One The key to successfully renting a house is to have cash flow from the day it’s operational. To do this, you must buy a house where the mortgage and HOA fees are lower than the rental income.
10. Exit Plan

You should always be clear on your exit plan. Are you planning to hold this house for 20 years until you’re eligible to retire? Are you just holding this house until the next boom, sell for the paid-off capital gains and depreciation, and then buy it down in the bust? What are your plans and goals for the house?

Additional 6 Tips for the Real Estate Investment Journey

1. Real Estate is Always a Bumpy Journey

Nothing ever goes as planned. Think about the economic recession of 2008. The key is to stay flexible and continue to look for opportunities around you.

2. You Only Lose Money When You Sell

As long as you don’t sell and your rent is enough to pay the mortgage, you’re not losing.

This is a great advantage of income properties — if the market dips, those who bought cash flow negative properties relying on appreciation for returns (which is also why many investors consider this speculation) could be hit hard, but properties generating substantial monthly cash flow won’t be affected.

3. Business; Not a Charity

This is a business. To be successful, you must make money. Don’t let anyone make you feel bad about success and making money. Toyota, Safeway, Target, and McDonald’s all make money, and so should you. Don’t let your tenants or anyone else make you feel bad about success.

4. Ulcers Will Occur

There are always times when being a landlord is not fun. Tenants will trash the house when they move out. They will try to break leases. You have to stand up for your house. No one cares about your house more than you! Just don’t jump ship during the lows. Stick it out and wait for the highs. Ah, but there will always be highs.

5. Sign a Very Clear Lease

If it’s not written down, it doesn’t count. The more specific the lease, the better for protection and reference. I have a 15-page lease.

6. Tax Advantages

There are many tax advantages to owning rental property. From deducting all expenses, declaring depreciation, capital gains, to being able to convert rental property into a like-kind exchange — there are many benefits (i.e., deductions for rental property).

Final Thoughts

Owning rental property or any type of real estate is unpredictable and can experience huge fluctuations just like any investment market. The key is to have a plan and stick to it. The key to success is continually evaluating and adapting while never forgetting the mission or purpose behind embarking on this industry.