Our team at Invest In Bend receives plenty of questions from investors who are interested in finding an investment property for the first time. Good news! There’s no one “right” way to start investing in real estate. Instead, there are a number of starting places depending on your goals both short and long term to generate passive income. There are options depending on your budget, how much time you have to work on your real estate property, whether or not you want to be a landlord, and much more.
As the Central Oregon area has become such a hot real estate market, we’ve helped buyers successfully choose from these investment options. Now that the market is beginning to open up more post-pandemic, it’s a great time to look for the right properties. Let’s go over the strategies we’ve seen work best for beginners, and which may be right for you.
1. Start Small
Starting small is important if you are a new investor in a rental property. Fortunately, one big purchase isn’t necessary to kickstart your investment – there are many easier steps you can take as you start getting more familiar with the market.
No matter how you start, always remember that research is key. Don’t make any investments without careful research. That’s especially important when learning about real estate trends, how the real estate market is affected by outside forces, and what ROI you can expect.
2. Rent Out a Room
A popular starting place for those with the right kind of property is to begin renting out a room. This is similar to renting out an entire property, and uses the same kind of leases, but you are renting out a section of your primary residence instead. Many kinds of remodels can help make room rentals viable, such as turning a basement into a separate living space, building a “granny pod” in the backyard, and much more. Benefits to this approach include:
- You don’t need to find a separate property and go through the purchase process. That means renting out a room is available to people in a variety of financial situations, even if purchasing new property would be difficult. It also doesn’t require a large infusion of cash if a remodel isn’t necessary.
- Renting can help with paying mortgage payments as you’re supplementing your monthly income. This can increase cash flow for other investments over time, or help owners deal with mortgage that may otherwise be difficult to pay.
- It’s a useful introduction to rental contracts on a smaller scale. You can learn about how rental leases work, what appropriate rates are based on the space you are offering, how leases are enforced (and how payment is collected), and how to choose tenants. This will be invaluable when moving to larger investment projects and will help you choose the right property management services.
- You don’t have to travel to visit your rental space. This makes maintenance and monitoring much easier.
- It enables long-term planning, like living in part of an investment property and renting the rest out until you have saved enough to move. It’s sometimes called house hacking, but it remains a viable strategy, especially for younger investors.
3. Find Out What Rentals Best Suit Your Investment Plans
With enough research and early types of investment, you’ll quickly start to learn about rental properties. Before long, you’ll be ready to identify the locations you’d like to invest in and choose a specific type of residential real estate that works best for you to increase your net worth. Common rental options include:
- Single-family rentals (SFRs): These residential property rentals are generally in high demand, can be easily found with online searches, and are ideal for larger families, groups of roommates looking together, and renters looking for pet-friendly locations. While these SFRs tend to be more expensive up-front, single-family rental loans come in many forms, and the property can generate strong returns in high-demand markets. An SFR can also help you qualify for tax benefits and may be more likely to appreciate in value over time than other options.
- Condos: These privately owned units in multi-tenant buildings are a common early investment option, as costs are lower compared to choices like single-family homes. However, rules about renting condos can vary, and renting is often capped or allowed only with strict guidelines.
- Townhomes: These are larger units that function as individual, privately owned homes, often with their own yards, but share walls with another unit, up to about four units at a time. Townhomes are a great compromise for those who are looking for something more affordable than a single-family house. They may also be more common in high-demand areas where housing is becoming denser and property values are rising more quickly.
- Vacation rentals: These are properties bought with the goal to rent them out for short-term stays, such as on Airbnb. This is another area that may be strictly limited depending on local regulations but can be a flexible source of rental income with the right approach.
- Small multi-tenant properties: These are houses built into several units, often with easy access to city centers and job locations (sometimes called workforce housing). Because they are smaller than an apartment complex, they may be within reach of an individual investor looking for a large investment. However, they also take work and experience to manage.
4. Talk with the Experts
As you consider your preferred type of rental property and the best location for your investment, start talking to experts on the ground. Research can teach you a lot, but you’ll want to consult with someone that has experience in a particular market.
For example, if you are looking for a property in Central Oregon, someone with experience in the local market can discuss which city would be best for certain properties (Redmond vs. Prineville, etc.), what locals expect the market to do in the coming years, and how current market prices are working.
There’s another reason to make connections with someone on the ground in a market as hot as Bend and the surrounding areas: It can help when you’re ready to buy. Sometimes the most sought-after investment properties don’t last long on the market or are sold before they are even listed. Networking with experts in the area is a way to circumvent these issues.
5. Invest in Rental Properties
When you are ready, it’s time to get your financing in order and make a purchase. Invest in Bend can help manage the details, but it’s important to act quickly when everything is in place. Other steps like thorough research and learning about the regional market will help this step go smoothly.
Purchasing rental properties often becomes easier over time. Once you have shown financing institutions that you are able to manage profitable rental properties, they will be more willing to provide financing for additional purchase or important remodels. That brings us to another important point about your rental decisions…
6. Flip Investment Properties
Once you have a property in hand, long-term renting is only one option. Another popular choice is flipping the property after improving it. You’ve probably seen property flipping popularized by home improvement TV shows that showcase important repairs and makeovers with the goal to sell a property for much more than it was purchased for.
Flipping is a tricky proposition for beginners, and typically only works well under specific market conditions. The costs of remodeling can be high, and turning a profit requires that the future market value of the house offsets any expenses, which may be difficult to accurately predict. The timeline for flipping a house can also be uncertain based on the availability of contractors and general demand. Flipping may be an easier option if you don’t mind living in a house for several years while making low-cost repairs over time and waiting for ideal market conditions to sell.
Partner with Invest in Bend
Property investment requires top-tier knowledge of the location and market. At Invest in Bend, we have more than 50 years of combined experience in the Central Oregon market. Whether you want to search for available properties yourself, ask for a property valuation, or seek realtor services when you are ready to buy, visit our website to learn more. Our services are designed to enable long-distance real estate investing. We also offer property management services through our partner company Mt. Bachelor Property Management, composed of expert property managers.