Invest in Your Own Home with a Mortgage-Free Investment Strategy
It might surprise you that 90% of all millionaires created their wealth by investing in real estate. So if you dream of becoming a millionaire (or even just building long-term wealth), real estate investment is a sound strategy.
While real estate investing is a great way to build wealth, many people shy away from it because they think they need a large amount of money to get started. However, if you are already a homeowner, you could make your home work so that it becomes a springboard to begin building your real estate portfolio.
By making a few strategic moves, you can position yourself to buy your next home without incurring any additional debt. In other words, you can begin growing your wealth without taking on any additional risk.
So, if you're considering investing in real estate but don't know where to start, this guide is for you. We'll show you how to use your current home to build a real estate portfolio that will set you up for success.
Make Your House Work for You
If you're not ready to sell your home but want to start building your real estate portfolio, the best option is to turn your home into an investment property by renting it out. This strategy can be especially helpful if you live in an area with high rental demand. Renting out your home will allow you to generate extra income that you can use to buy your next property.
You can rent your home as a vacation rental or a full-time rental. Here is a closer look at each option.
Turning Your Home Into a Vacation Rental
If you live in an area popular with tourists, you could turn your home into a vacation rental. You can rent out part or your entire home by listing it using platforms like Airbnb and VRBO.
This option can be a great way to generate extra income, as vacation rental rates are typically higher than regular ones. Data shows that, on average, Airbnb hosts in the U.S. make $9,000 per year. You can earn more if your property has more positive reviews or is close to a popular tourist destination.
However, there are a few things to keep in mind before you turn your home into a vacation rental. These include:
Research Your Local Rules and Regulations Governing Airbnb Rentals
Every state has different rules and regulations governing vacation rentals. For example, some states only allow you to rent out your home for a certain number of days per year. Others require you to obtain a business license before turning your home into a short-term rental.
In some states, your home must be your primary residence if you want to rent it as an Airbnb. The bottom line is, know your local laws and regulations before you start listing your home as a vacation rental.
Spruce Up Your Home Before You Start Renting
If you want to attract high-paying guests, you'll need to ensure your home is in good condition. This includes making professional renovations and ensuring that your home is clean, comfortable, and clutter-free.
It would be best if you also stocked your home with the necessary amenities, such as toiletries, linens, and kitchen supplies. Providing these items will make your guests' stay more enjoyable and could help you earn higher reviews (and rental rates).
Take High-Quality Photos of Your Home
When listing your home on a vacation rental platform, it's important to take high-quality photos showing your property in its best light. After all, your listing's photos are one of the first things potential guests will see.
If you're not confident in your photography skills, you could hire a professional photographer to take photos of your home. This investment could pay off, as listings with high-quality photos tend to earn more rental income.
Curate a Killer Listing Description
Your listing's description is another important factor influencing whether or not potential guests choose to stay at your property. When writing your description, highlight the best features of your home, as well as any nearby attractions.
You should also avoid using too much industry jargon, which could turn off potential guests. Instead, use simple language that anyone can understand.
Be Prepared to Handle Guest Inquiries and Reservations
Once your listing is live, you'll need to be prepared to handle guest inquiries and reservations. This includes promptly responding to messages and providing guests with clear check-in and check-out instructions.
It would be best if you also had a plan to deal with any issues that may arise during a guest's stay. For example, what will you do if a guest damages your property? Although Airbnb provides host liability insurance of up to $1 million, it's still a good idea to have short-term rental insurance.
Turning Your Home Into a Full-Time Rental
Besides using your home as an Airbnb, you can rent it full-time to people who need the space. You can rent out a portion of the home, such as the basement, a room you don't use, or the entire home. This option is great if you want to generate a steady stream of rental income to help you build your real estate portfolio.
If you choose this mortgage-free option to build your real estate portfolio, you'll need to consider a few things, including the following:
Do Research on the Ongoing Rental Rates
Before you start renting out your home, it's important to research the ongoing rental rates in your area. This will help you to set a competitive price for your rental property.
You can find out the average rental rates in your area by searching online or contacting a real estate agent. Once you know the going rate, you can set your rental price accordingly.
Upgrades and Repairs
You will need to renovate your home, just like you would if you were selling it. The goal is to make your home more appealing to potential renters. Simple activities like deep cleaning and painting will suffice.
If anything looks outdated, you should consider upgrading it. This includes old appliances, kitchen cabinets, door knobs, bathroom faucets, light fixtures, and flooring. Not only will this make your home more attractive to potential renters, but it will also increase the rental value of your property.
Take Out the Right Insurance
If you decide to rent your home, your homeowner's insurance policy will no longer suffice. You will be taking on additional responsibility for your tenants’ safety. That’s why you need landlord insurance to cover property and other liabilities.
With this insurance, you will have coverage for your home and any injuries that occur on the property. It will cover legal costs and medical bills if you're liable for injuries your tenants sustain.
Get the Necessary Permit
Depending on where you live, you might need to obtain a permit before you can start renting out your home. You could face hefty fines if you don't have the necessary permits. Not to mention, your tenants could be evicted from the property if it's discovered that you're renting it illegally.
In most cases, municipalities will require you to have a permit for safety reasons. An inspector will check your house to ensure there are no safety and health hazards. If necessary, they will give you a report recommending the repairs and modifications you should make to ensure your property is safe for renting.
Screen Your Tenants Thoroughly
You need to be sure you're renting to responsible tenants who will take good care of your property. To do this, you'll need to screen them thoroughly.
This includes running a credit check and conducting a criminal background check. You should also get references from their previous landlords. Screening your tenants will help you avoid renting to those who are likely to cause damage to your property or fail to pay rent on time.
Decide whether to Hire a Property Management Company
You can always hire a property management company if you don't want to deal with the hassle of being a landlord. A property management company will take care of all the day-to-day tasks associated with being a landlord. This includes screening tenants, collecting rent, and dealing with repairs and maintenance issues.
A property manager will also handle the eviction process if it ever becomes necessary. Of course, there is a cost associated with hiring a property management company. But, it might be worth the expense if you're not interested in being a landlord.
Start Your Real Estate Portfolio With Your Own House
As you can see, there is a mortgage-free way of real estate investing. If you're a homeowner, your home can be all you need to raise enough capital to buy your next house. The key lies in renting it to vacationers or long-term tenants.
If you feel it’s the right time to start building your portfolio as a homeowner, consider partnering with Larossa Construction. We are home renovation experts and have the experience to transform your home into a space that potential clients will love.
If you’re looking to make your house work for you in Chattanooga and the surrounding areas, contact our experts today. We will be happy to help you make your home rental-ready.