Buying a rental property can be quite lucrative, but there’s a lot that goes into ensuring that it is an investment that will pay off.
Successful rental property owners understand basic real estate laws, contracts, and financing. Even if you have no plans on becoming a realtor, signing up for a pre-licensing course at Lead Agent will help prepare you and avoid expensive mistakes or surprises.
Not every decent property you see will be worth the investment. There are several factors to consider, and here is a quick rundown of a few of these factors that you should keep in mind before buying that rental property
- Your Budget
In the same way, that potential tenants will have a budget when looking around to rent, so should you have one as you look for a property in which to invest. Can you afford the down payment? With a good credit score, securing a loan should be quite simple and straightforward. However, you should also bear in mind the fact that investment properties have higher loan costs.
If you are not keen on partnering up with others as co-investors, then you should make sure that you can put together the initial investment. You should also be able to have enough for other expenses such as repairs and renovations.
- The Condition Of The Building
While you will undoubtedly get a good bargain on a fixer-upper, you should consider the cost you will incur in repairs. You should also keep in mind how long it may take to get things fixed. Buying a rent-ready building that doesn’t require flipping is always ideal.
If you must, then ensure that you go for a house that only requires minor repairs. You can take on these repairs as a DIY, and they won’t cost you too much to get fixed by a professional.
- Location, Location, Location
Just as important as the condition of the property, is the neighborhood where it is located. Potential tenants will be looking to rent a house in an area with low crime rates. They also want a home near public transport and easy access to different amenities such as parks and gyms.
- Insurance Costs
Staying with the location factor, some areas, because of their vulnerability to natural disasters, generally have higher insurance premiums. The same goes for areas that have high crime rates.
Before buying the property, consider the insurance coverage you would like to get and compare the rates offered by different insurance providers. You will not pocket nearly enough profit if the insurance costs are too high, and are better off looking elsewhere.
- Property Taxes
Still, on the location, you will find yourself paying more in property taxes for a rental property in the metropolitan area. A tax assessment can tell you how much you can expect to pay in property tax, and based on that information, determine whether buying a particular property is worth the investment. High property taxes will eat into your monthly rental income.
- Property Management
Will you be responsible for managing the property, or are you going to hire a property management company for that? If it’s the latter, you should consider how much it will cost and what this expense will mean for your net income.
You may consider managing the property yourself if you are handy and know your way around a toolbox. Maintaining the property yourself may also work for you if you do not mind getting calls at odd hours from that tenant who needs something fixed. Also, ensure that you have a reliable handyman that you can call on for those fixes that you can’t do by yourself.
Purchasing a rental property is a big investment that you should not rush into at all. Invest your time and resources into doing due diligence. Based on the highlighted factors, among others, find a property that will give you a good return on your investment as you join the league of property owners and landlords.