Investing in real estate is one of the most popular and stable ways for the average professional to invest. You don’t need to be wealthy or dip your toe into the stock market. You don’t need to learn about mutual funds or weigh the future potential of different markets. In fact, many people find themselves able to become real estate investors without meaning to – by owning a home they are not currently living in.
Residential real estate always has value, and that value consistently goes up over time. There are also several stable and easy-to-understand business models for turning a spare house into an investment income source. Rental homes, vacation rentals, and home flipping are all approachable ways to buy, rent, and re-sell homes to generate income.
How to Invest in Residential Real Estate
Step 1: Buy or own a house
Step 2: Choose a business model
Step 3: Renovate and prep the home for its purpose
Step 4: Rent and maintain the house over time
Step 5: Sell the house for a profit
There are five steps to residential real estate investing. Buy a single-family home, choose how you will generate income with it, make alterations to the home so that it best suits your business model, and then maintain the property as you rent it to tenants or guests. Eventually (or sooner when flipping), you may sell the investment property for a profit, or for the revenue to buy an even better house or set of houses.
Step 1: Buy or Own a House
The first step is to own a home you can convert into an investment property. Many people get started after buying their second house or inheriting an extra house from a relative. Some even rent-vest, where they keep a city apartment and lifestyle, then buy/rent homes for the profit.
When buying an investment home, buy close to home or consider the best local markets. If you are choosing an investment region strategically, look for areas experiencing a temporary economic or housing depression, where home prices are lower but will soon rise. You will also want to watch for areas where rent is at a higher ratio compared to home prices, for a faster ROI (return on investment) rate.
Finding Investment Properties
A real estate agent can help you identify which homes will make good investments, and for which purpose. If you dream of being a vacation rental host and decorating beautiful homes for guests, you’ll want nice, cozy little properties. In fact, the best vacation rentals make poor family homes. They might be strangely shaped or have small rooms, but make perfect private escapes for travelers who want residential luxury over a hotel cookie-cutter experience.
The best homes for flipping, however, are those that have fallen into disrepair, but the bones and fixtures are still good. With a little rebuilding, a new floor, and a fresh coat of paint, these homes could be cozy again. Your real estate agent can help you find a collection of nearby homes in the ideal state to be renovated at a profit.
Step 2: Choose Your Business Plan
How will you turn your investment property into revenue income? Choose one of the three business models for residential investment properties.
Rental homes provide a house for people and families in need of a primary residence. You will be responsible for keeping the property maintained, especially essentials like the roof and plumbing, while your tenants take over living in the house and little maintenance tasks like raking and clearing the gutters.
Vacation rental turns your house into a cozy, residential hotel experience. You can rent out by the bedroom or book the entire home at a much higher rate. Vacation rentals are rented by the night and, if popular, have the potential to multiply your profits from a long-term rental home. However, they also require more investment (furniture, decorations, toiletries) and daily maintenance.
Home flipping is a unique approach for DIY and construction-oriented investors. If you would be good at taking shabby, nearly off-market homes and efficiently transforming them back into welcoming little starter homes in good repair, then you can make a mint. Especially during today’s housing market shortage where renovated homes back on the market are highly valuable.
Step 3: Renovate the House for Its Purpose
Once you know your plan, renovate to attract the right type of customers and maintain your investment. A rental home should have good, reliable appliances, an attractive design, and be completely empty to quickly move in a new family. Fresh paint and clean floors in neutral colors are a must, and your neighborhood will determine what designs are competitive.
A vacation rental should be decorated like a guest house or hotel room. complete with bed coverlets and little soaps in the bathroom. You may want to make an extra effort both designing and renovating to make the space appealing to luxury travelers. You could be booking over $300 a night with a vacation rental that makes your guests feel private and pampered.
For home flipping, your goal is an efficient transformation from a shabby under-valued house into a functional and attractive home. Rebuild, replace, and remove whatever is needed, then repaint, refloor, and landscape to attract homebuyers at a profit.
Step 4: Rent and Maintain the House Over Time
If you chose a rental or vacation home as your investment type, maintenance becomes your primary concern. Rental homes are low-maintenance most of the time. Tenants often prefer to take care of everyday maintenance themselves and will call you if there is anything serious like a leaking roof or pipe. Between tenants is when you conduct larger repairs, tune-up the appliances, and take care of timely maintenance.
Vacation rental investment, however, is a customer service role. You will be on-point to help guests and you will likely need a cleaning team to help remove all crumbs and stains between guests. Both roles can eschew most of the maintenance hassle by hiring a property manager of the correct skillset.
Step 5: Sell the House for a Profit
You may eventually choose to sell your investment home. Home flipping aims to do this quickly for an immediate profit. During today’s housing crisis shortage, you can expect to sell for top dollar, with buyers competing avidly for a home that is now ready for the high-pressure market for move-in-ready homes.
Rental and vacation homes might be sold later on to buy better properties or retire from the landlord game as you so choose. When this happens, take one more round of renovations to get the property at its best, and, likely, you will sell for much higher than the purchase price years before.
Building Your Investment Real Estate Team
Of course, what we haven’t talked about is your investment team. No real estate investor goes it alone. Most have a real estate agent to help them find good properties that will rent successfully. You can roll the revenue from the first property into future investment home purchases in just the right neighborhoods for easy management and great revenue.
Most investment homeowners hire a property manager to help take care of tenants day and night and to keep the property in good shape. You may also build a team of home services like trusted roofers and plumbers who you work with regularly to do good worth with each of your investment properties. Your team is an essential part of any long-term or multi-property real estate investment plan.
The best thing about real estate investment is that anyone can do it. All you need is one house you are not living in, and you can get started renting to long-term tenants or vacation guests for a profit. To further explore your real estate investment plans or to start looking for the perfect starter investment home, let’s connect today!