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Passive income is a dream come true. You sit on your couch watching TV and the next thing you know, your phone chimes with a direct deposit straight to your checking account.
There are a few ways that you can start bringing in cash with a passive income, from investment strategies to selling ad space on your blog.
However, one of the most popular ways that people can start earning a lucrative passive income is through real estate. By buying and selling property, or purchasing and renting a condo or house, you can really start to rake it in.
This guide will walk you through what you need to know getting started with a rental business for passive income.
First: find the right property
The first step is knowing what property to buy and what clientele you hope to market to. Are you looking to get a house near a university that you can rent out to college students?
Are you buying units in a condo complex that you can rent out to young couples that want to live close to work downtown?
Are you buying a luxurious rental property near the beach that you will rent to vacationers looking for a relaxing getaway? These are all questions you should ask yourself before you dip your toe in the rental business. Some important tips to keep in mind as you search include:
- Find the right location – more desirable locations tend to bring in higher rents than less desirable ones.
- Know your options – condos, houses, multi-unit buildings and more
- Think about the size of the place and what you can afford, which brings us to our next step…
Second: sort out your financing options
Very few people have the liquidity to buy property outright and start renting. That means you’ll have to start thinking about financing options. If you have great credit, great!
You can head on down to your local credit union or call up your bank and see whether you can get approved on a mortgage.
You’ll want to sit down with an advisor and talk things through to make sure you make the best financial decision possible when investing in real estate.
If your credit is a little shabby, don’t worry. Direct hard money lenders are always an option for those looking to start a rental business but are a little light on cash. Just be sure you’re diligent about paying down the interest – with hard money loans, it can seriously start to pile up!
Third: find the right renters
Not all renters are the same. You want someone who will respect your property while still making it their home. The last thing you want is to walk into your unit after renters move out and find all sorts of damage. Some steps you can take to ensure that your renters are responsible include:
- Run a credit check to be sure they can make monthly payments
- Run a background check so you know they won’t be doing crimes in your unit
- Make sure your lease is direct, so it’s clear if there are any violations
Different kinds of properties appeal to different clientele. So, if you purchase a small studio, be aware that you might not have the fanciest clients heading your way.
That said, just because someone has purchasing power doesn’t mean they’re responsible. That’s why it’s important to run a background check and meet renters face-to-face before making any decisions.
Fourth: know your maintenance folks
It is what it is: you will be faced with fixing things that go wrong in your properties. Part of being a responsible business owner is knowing who you will call on to fix things. You should have reliable handymen and specialists on-hand, including professionals like:
- General handymen
- Utility companies
You don’t want to be caught off-guard if a tenant calls to say the stove is spouting flames or the refrigerator has started gushing water.
Be prepared to have someone to send over for emergencies like this, to protect both your tenants and your investment.
Starting your own rental business can seem daunting. However, if you take things step by step and are diligent the whole way, renting or even house flipping can be a rewarding and excellent way to bring in passive income.