How To Make Money With Rental Property

Everyday in the investment industry a new course or newsletter is born promising you vast fortunes if you purchase their latest trading strategy or ebook. What most of them omit to tell you is that there is a vast gap between the level of proficiency that the gurus have in making money and the average beginner. Recently, Forbes magazine after an extensive study of all the various rich and wealthy people that they have in their list, realised that real estate and property investment remains as one of the best ways to become a millionaire or billionaire today.

Most people start their real estate investment after they pay off their first home and then start deciding how better to manage their funds and investments. This article goes on to explain three things you need to note if you decide to make a rental property investment for monthly cash flow purposes.

Tip #1: Decide on class of property

For first time property investors, most people will not have enough capital to invest in large commercial projects but do not be put off by this class of property investments. Some neighbourhood strips or shop houses may provide you with a better rental yield then say a residential property in a bad neighbourhood. The rule of thumb is to choose a property that you can manage.

The difference between commercial property and residential property is one of maintenance. While substantively the real estate law governing tenancy for both is the same, however practically there is a difference. If you have a commercial property, your tenant will usually repair and remedy any defects himself because they have a business to run and the property defect will look bad on them. Some residential tenants on the other hand love to run to the landlord for the slightest leak and this can be a hassle. Thus spend some time considering what class of property you wish to acquire and then focus on shortlisting suitable properties.

Tip #2: Decide on the amount of financing

Depending on the state that you are in, you might want to make a trip to your mortgage broker to figure out how much leverage you can get on your property. The more financing that you get, the more your return on your investment will be because you are using less of your own money to control more real estate.

Some states have mandatory down payment laws that are meant to cool the property sectors in certain areas and may reduce percentage of financing that you can use for the property. Thus always spend some time to consider how much money you can afford for the down payment. Remember that if you should decide to renovate the property that you are acquiring, that will also cost money so always consider how much you have to spend before going around on your acquisition spree.

Tip #3: Analyze the rental – mortgage difference to get a positive cash flow

Most advocates of the cash flow investment concept will tell you that you must generate a good monthly cash flow from your investment. This means that the amount of money that you keep in your bank account each month from the rental after deducting expenses for taxes and mortgage instalment payments must be substantial.

There are those that love to purchase property based on impulse and feel for the property. This approach may not be wrong in itself, but should always be done after you do your maths and rental cash flow calculations. Remember to take into account the downside of the rental yield in a bad year especially if you are purchasing this property in a good year.

In conclusion, making a monthly cash flow with rental property is possible if you spend some time to do your homework before purchasing your next real estate investment rental property. Keep your eyes open for the next real estate bargain and it may come your way soon. Start taking massive action to achieve your real estate investment goals today and your dreams for a good monthly cash flow may start appearing sooner than you think.

Copyright © 2006 Joel Teo. All rights reserved. (You may publish this article in its entirety with the following author’s information with live links only.)

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