The easiest way to get started earning passive income from investment property is to keep your first home and rent it out when you move to a new one. You want a home that will provide a steady monthly income, and starter homes are perfectly sized and priced for this purpose. The key to success is to treat the rental property as a business. To do this, you’ll need to learn as much as you can about real estate and determine good rental candidates for the area.

Investment House Home

Real estate factors

Cities with strong rental demand are those with colleges, military bases, and active urban centers. Consult a real estate agent about comparable home costs in the area. Statistical Atlas will give you specific information on average household incomes, unemployment rates, and job growth. Look online to find out how high the demand for rental properties is by searching for current vacancy rates; a declining vacancy rate means that future demand is rising.

Determine rental strategy

With all of the real estate data you gathered, it’s time to decide whether you want to pursue short-term or long-term rentals. Websites like VRBO and Airbnb allow individual homeowners to rent like a hotel in popular locations. Alternatively, you can hire a property manager and let them secure a 6-month or one year lease. Property investment services can advise you on the best strategy based off of your income goals.

Renting a property like a hotel can generate more income, but it requires a lot of hands-on work. You’ll need to be available to manage the social media, provide keys to renters, and solve any problems firsthand. Having a tenant who rents for a year won’t require daily or weekly service for linens or a hands-on social media presence. Because you’ve already lived in the house, it’s likely ready to rent without necessary renovations or repairs.

Isolate a steady demographic for rental

The best way to determine the target demographic for potential renters is to drive around the neighborhood. Look at the general yard conditions, presence or absence of swing sets, income level, and car values. From these factors, you can determine whether you’re most likely to rent to college students, young families, or working professionals.

For example, imagine you own a two-bedroom single-family home with a small yard in a university town. It’s equally as likely that it would attract a young family with a child as it would three college students. Use the data gathered from the existing neighborhood population to determine likely renters.

Establish if pets are allowed

Decide up front whether you will allow pets in your rental property. Denying pet owners will reduce the population of available renters, but allowing them will likely require restorations between each renter. You can mitigate the cost of the required upkeep by charging a non-refundable pet fee. You’ll be most successful in generating income through rent by appealing to the broadest population available.

Conclusion

Generating passive income from real estate is one of the most effective ways to build wealth. You’ll have an advantage by renting out your first home when it’s time to move up to a new house. You already know the neighbors, local restaurants, school ratings, and more. All of this data will allow you to market it easily and gives you credibility. Treat this new venture as a business, not a hobby, and your first home will quickly pay for itself.