How to own a rental home.

An article in the Wall Street Journal this weekend explained different ways to own a rental home.  Here is the link:  http://online.wsj.com/articles/new-ways-to-profit-from-renting-out-single-family-homes-1411150866

The article mentioned 4 methods....1. just buy it and rent it, 2. find a company that will do it all for you, 3. REITs, and 4. crowd funding.

 

Number one is self explanatory.  The investor just does his/her research.  Locates and buys a home and rents and maintains it.

 

Number two requires a finding a management company that will locate, help with the purchase and then rent and maintain the property.   Most all property management companies do the renting and maintaining parts.  According to the Wall Street Journal article, there are some that now will do the locating and assist in the purchasing, so that owning a rental property is something that the owner can do with almost no effort...it is all done for a fee by the management company.  Obviously the savvy investor could save the fees paid to the management company if she/he did all that work him/herself.  But if the investor is highly compensated in her/her own profession, they may earn more much more money per hour at their own profession then the management company fees, which would make it cost effective to hire the property managers.  Another aspect to look at is the management firm's expertise.  If the managers can find better and less expensive properties to buy; and if they can manage them more efficiently than the investor can, then again hiring the property manager would be the better choice.

 

Number three is the REIT which stands for Real Estate Investment Trust.  REITs are publicly traded companies that raise money from investors to purchase real estate.  The company owns the properties, but the investors own the company.  For the investor, this is exactly like any other stock, in that to be successful, the investor must closely study all aspects of the REIT prior to investing and then after investing, the investor hopes nothing changes for the worse.  In a REIT, the investor has no control except to pay into the fund and then withdraw from the fund.  The hope is that the investor makes money in between those two events (just like any other passive investment).

 

The fourth way of investing is through crowd funding with companies like Groundfloor, Infunding and Patch of Land.  Apparently those companies and other like companies find a property and then ask people on the internet to invest a small amount...such as $50 or $100 for a share of the property.   When they obtain investments from a sufficient number of people, they buy the property and all of the investors own a small portion of the property.  Since crowd funding is a new method of investing, a potential investor needs to very carefully investigate such a company before investing.   Looks to me like these could very easily be operated by criminals who will steal the money being invested.

There are many ways for an investor to buy that rental property.  Once you decide that you want to invest CAREFULLY CHECK OUT ALL THE DETAILS OF THE PROPERTY AND THE COMPANY AND PEOPLE YOU WILL BE WORKING WITH.  YOU CAN NEVER BE TOO CAREFUL.  If you decide to invest, good luck.

Posted on September 21, 2014 .