Rental income and tax deed investment properties may be on your mind as a viable option to build your investment portfolio and generate returns. After all, tax-defaulted properties come free of mortgages and deeds of trust, and you can snap them up at a fraction of the market value, providing you with a high margin and little risk of negative cash flow.
So does tax-delinquent real estate translate into a high return on investment when rented out? While the benefits of renting tax deed investment properties may seem appealing with the ultimate aim of having someone else pay for the property expenses, the rental income it generates may not be enough.
Over the past 30 years, I’ve guided both experienced and beginner investors alike through the complexities of rental income and tax deed investments, so let’s talk about how you can maximize your profits.
Key Takeaways
- Tax deed properties can offer a high return on investment due to their low acquisition costs
- Rental income may not be enough to fully rely on, but it can provide a steady flow of income from your real estate investments
- Consult with professionals, such as attorneys and title companies, to ensure proper rental contracts are in place and to navigate the challenges of the rental business
Buying Tax Deed Investment Properties to Rent Out?
Turning tax deed investment properties into a source of rental income can be a smart move as a long-term strategy. One appealing aspect of tax deed properties is their potential for high return on investment (ROI). Since these properties are often purchased at tax auctions mortgage-free for pennies on the dollar, you’ll have a lower initial investment, leading to higher ROI.
Building a substantial portfolio of rental properties using tax deeds would require a considerable investment. Renting out these properties could provide you with income, but it initially might not be enough to live on or finance the purchase of your next property.
Therefore, to be a successful long-term investor, consider initially buying tax deed properties for a quick resale to generate cash flow. As you build up your cash reserves, then start picking up tax deed investment properties to lease out as rentals to create a passive income. A good approach is to do both; sell properties to acquire funds to buy increasingly more real estate, and as your funds increase, then start picking up properties to hold onto to build your rental portfolio.
Tips for Building a Portfolio of Rental Properties via Tax Deed Investing
Maximizing ROI with Real Estate Tax Deed Investing
Buying tax deed investment properties at auctions enables you to acquire real estate at significantly reduced prices, sometimes only 10-20 cents on the dollar. These properties come with no mortgage or deed of trust, which is wiped out during the auction process. This means you can generate a higher ROI due to your smaller investment.
A buy low, sell low strategy can enable you to flip a tax deed investment property quickly. For example, if you purchased a property for 20 cents on the dollar, you could sell it fast for 60 cents on the dollar and still generate a $25,000, $50,000 or even $100,000 profit that you could use to buy more tax deed investment property until you built up enough funds to start purchasing properties to rent out.
Strategizing for Long-Term Real Estate Investments
In a nutshell, to build a portfolio of rental properties, begin with purchasing one low-cost property and using the resale profits to invest in the next one. By scaling up the investment and profit in subsequent properties, you can eventually reach a point where you have enough equity to begin renting out your properties.
Analyzing the Current Rental Market Conditions
The rental market can fluctuate depending on various factors, including interest rates and the overall economy. To determine whether the current market is favorable for renting out tax deed investment properties, assess market conditions regularly.
Currently, with interest rates on the rise, property sales are slowing down, which could mean an increasing demand for rental properties.
Significance of Leasing Contracts in the Renting Industry
Using the right contracts plays a crucial role for a successful rental business. Contracts help ensure that both parties uphold their responsibilities and provide a clear understanding of the rental terms. Different types of rental contracts cater to various rental scenarios, and dictate the terms and conditions of the landlord-tenant relationship or rent-to-own scenarios.
When dealing with tax deed investment properties, keep in mind that they might require some maintenance and renovations, as they’re usually used and abused properties. This means you’ll need to be flexible when choosing tenants and consider partnering with those willing to invest their labor in property improvements in exchange for rental credits. Finding an appropriate lease agreement for this scenario is crucial.
It’s best to consult professionals about selecting the best rental agreement for your tax deed investment property. Engaging a skilled attorney experienced in real estate, consulting title companies, and seeking the help of financial advisors can all be beneficial in finding the right contract for you. Note that title companies can often provide various contracts and advice at a lower cost than hiring an attorney directly.
Facing the Hurdles of the Tax Deed Rental Business
As you navigate the world of real estate investment, you may be drawn to rental property as an income source. While it can be a smart choice, it’s essential to understand the challenges you might face.
Building a rental property portfolio from tax deed investment properties can take years, as initially the rental payments are generally small and may not cover your living expenses, let alone provide enough funds for your next investment. Although rental income may not provide substantial amounts, it can be a good decision if you’re seeking a consistent flow of money.
Properties that need some renovation or repairs can attract tenants who are willing to invest their own labor in exchange for rental credit, but bear in mind that these tenants may not have pristine credit histories. Be sure to assess their reliability before signing an agreement.
A well-informed approach and the assistance of professionals will help you navigate these challenges to create a thriving rental business.
Conclusion
As a real estate investor interested in turning tax deed investment properties into rentals, it’s wise to focus on building a diverse portfolio over time, gradually increasing your investments in these properties.
By carefully considering your rental income goals and working with professionals to navigate the complexities of contracts and leases, you can build a successful portfolio and achieve your desired return on investment by taking advantage of the amazing discounts on real estate offered at tax deed auctions.
If you’d like to know more about tax lien and tax deed investing Ted Thomas provides full support and complete training with home study courses, Q&A webinars, live tutorials, workshops, web classes, auction buying tours, personal coaching with certified coaches, and an interactive map and auction calendar research tool that allows you to visit each county online to find the details about upcoming auctions.
Want to earn massive income from bargain real estate investing? Would you like to buy mortgage-free properties for pennies on the dollar? Or earn double-digit interest rates secured by real estate? Then get started today with this Free Gift.
