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One thing we love most about real estate is that there are opportunities for all kinds of investors. You don’t have to be an expert in the field to get into the market and build wealth. However, that doesn’t mean you want to jump right in with no clue about what you’re getting into. That’s why the experts at TinyHouse.com present this guide to help you through the process of buying your first tiny house rental income property, so you’ll know how to get started and ensure the property you choose will be a good investment.
Before you start looking for properties, you need to have a good idea of what you can afford and how you will finance it. Unless you plan on paying in cash, you’ll need to secure a loan and decide on a down payment. According to Million Acres, most investors should plan on making at least a 20 percent down payment, if not more. Additionally, you’ll want to shop around for loan options and secure a preapproval. This is not the end of your responsibilities when it comes to money management as a landlord. For instance, you’ll need to get familiar with how to write a rent receipt for tenants, and encompass other costs in your budget for things like taxes and maintenance. You should also keep customizable eviction notice templates handy just in case, as you’ll want to hand one to a tenant as soon as you’re able. The faster you act, the better it’ll be on your wallet.
The next step is to start searching for tiny house properties. Even though you don’t have to be an expert, you do want to put careful consideration into what makes a property profitable.
Location: The location you choose can make a major difference in how successful you are, and it will also impact your budget. If you have an area in mind, start by doing some research on the average home prices, as well as how hot or cold the market is. If the housing market is competitive, you need to be prepared to act fast when you find the right property.
Besides the competitiveness of the market for buyers, you also want to have a good feel for the area’s rental market. Investopedia notes that one of the most important factors to look for is an area that has low vacancy rates because this is the best sign that you’ll be able to keep tenants consistently.
Condition: Even if you choose a property in a desirable area that has low vacancy rates, you can’t expect to attract and keep good tenants if the home is in poor condition. This doesn’t mean you have to find a place that’s in perfect shape, but you’ll want to account for any repairs that are needed — especially if you intend to purchase a home as-is. The first thing to look for is major damage, such as structural issues or water damage. Another thing to keep an eye out for is any problem that could present a health or safety hazard for tenants, such as lead paint or mold.
Some of these major issues could be a deal-breaker, but minor issues can often be fixed. For example, some of the best upgrades that make a property more desirable to renters include new flooring and added storage space.
Price and Income Potential: Along with the features that make a property attractive, you need to find one that gives you a good return on your investment. You can calculate an estimated return on investment based on the cost, potential rental income, and other expenses.
As you prepare to launch your new rental property business, one step is often left to the last minute: registering it with your state. The risk with leaving it until the end is that, depending on the entity type you choose, it may take some time to complete the process. To avoid last-minute delays and to expedite the selection process, the three primary criteria often are: the amount of protection provided to the owner; the flexibility in running the business; and the ease in completing the setup process.
A big part of your business plan includes a marketing strategy. You can use sites like Airbnb, and you can create your own website as a supplemental way to advertise and make bookings. Make sure you have cybersecurity measures in place to protect your and your renters' data. The last thing you want is to have cyber threats infiltrate your technology to exploit private information, which can lead not just to lost revenue but lawsuits.
Last but not least, you need to have a plan for how to manage your tiny house property. The main question is whether you want to handle it yourself or get the help of a property management company. Whether you should hire a property manager depends on several factors, including your experience, how much time you have, and your budget.
Even though owning a tiny house rental isn’t the same as running a business, you still have to account for both the time and money it takes to do it successfully. You don’t have to be an expert, but what you do need is a plan.
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