Buying a rental property and trying to become a landlord or lady for the first time can be tricky, even if you are extremely careful and do much research. For example, buyers usually need to secure a minimum of 20% of the total purchase or loan as a downpayment. Also, you might not realize it, but being a landlord requires a massive array of skills that you might not realize when thinking about rental property investing for beginners.
There is always the possibility that you do not have what it takes. Are you capable of handling repair jobs? If not, are you prepared to spend extra money to hire a property manager to handle those things for you? Location plays a massive role in how successful you’ll be at finding desirable tenants as well. What if the most lucrative neighborhood to buy a rental property is not a place you can easily get to yourself? You’ll have no choice but to hire a property manager or pay for any services that it will require (landscaping, remodeling, renovation, plumbing, etc.)
Luckily, better, more affordable opportunities for rental property investing for beginners, such as farmland crowd surfing investments, REITs, and stocks and mutual funds associated with commercial real estate. For example, a Real Estate Investment Trust (REIT) is usually considered a decent, affordable place for rental properties specifically for beginners.
Rental Property Investing for Beginners With REITs
REITs and mutual funds in the real estate industry are good choices for a diversified investment portfolio. A board of directors usually runs REITs by making management decisions for the trust. As long as 90% of taxable income is distributed as dividends to shareholders, this type of trust pays very little federal income tax. The downside to this is that REITs cannot often hold on to cash for the long term, resulting in growth and appreciation issues.
If you are interested in REITs, look into them very carefully, just as you would with your other options for rental property investing for beginners. There are real estate mutual funds that as well might be better for you.
Already own physical property and want to make profits by renting it out? Decide if it would be better to fix it up and sell it, then either invest that money or put it in a safe place like a Certificate of Deposit or Money Market Fund at a bank.
Learn more about REITs and how they work with DiversyFund. This company is a self-serve investment platform focused on multi-family commercial real estate that offers rental property investing for beginners who have at least $500 to get started. There are no management fees to worry about.