Rental Property Investment Tips
If you’re looking for ways to boost your income, you might be considering investing in a rental property. The benefits of owning a rental property are vast: there’s potential for consistent supplemental income that could lead to significant returns in the future, especially if you invest in an emerging neighborhood. However, rushing into a rental property can have some serious consequences.
Like any investment, purchasing a rental property requires significant research. It means learning about the requirements of owning a rental in your area, getting to know the neighborhood your property is in and taking on the many responsibilities that property owners have to assume. Rental properties can easily turn sour, which is why you need to consider these three factors before you invest.
#1: Analyze Your Financial Standing
Investing in a rental property requires many expenses, some of which you may not be aware of. You will not receive the same tax benefits and financing flexibility as you would for your current home. So, make sure you’re prepared to pay for the following expenses for your rental property:
- Down payments
- Monthly mortgage payments
- Property taxes
- Initial renovations and repairs
- Routine maintenance for tenants
- Home insurance
- Property management services
- General upkeep costs
- Property inspection fees
- Emergency expenses
- Licensing costs
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You should also ensure that you meet the requirements of owning a rental property in your local area. You may have to apply for a license, take a required course, and pay for certain inspections and certificates, among other requirements. Take inventory of your finances to ensure you can afford to purchase a rental property.
#2: Check Your Potential Investment Against These Profitable Qualities
When you decide to invest in a rental property, you want to make sure that your purchase will actually turn a profit. While the housing market can be unpredictable, you can easily spot a few key features of a profitable rental property after a bit of research.
- Is the property in a good neighborhood? The quality of the area will affect how quickly you can rent out your space and what type of tenants you will attract. For example, if you rent in an area with a high number of university students, you will see a high turnover rate around graduation and during the summer. If the property is in a quiet suburban neighborhood, you will likely attract families and older professionals.
- What are the crime rates like in the neighborhood? If you are considering an investment in an area with a lot of crime, you will have a difficult time finding tenants to fill your space. In addition, you may experience vandalism, thefts, and other unpleasant consequences. Choose a property in a lower crime area.
- What amenities are available in the neighborhood? Look at the proximity of your property to grocery stores, public transportation, movie theaters, parks, gyms, and other areas that would attract tenants to your property. The presence of amenities gives you an idea of the area’s attractiveness and can give you good selling points to place on rental ads.
- Are there lots of listings and vacancies in the neighborhood? If so, this could be an indication of a bad area to invest in. The higher the number of listings in the area, the more difficult it will be for you to find a tenant. In addition, you may have to charge a lower and less profitable rent to make it more appealing.
- Are employment opportunities rich in your area? This is a good sign of growth and could be an intriguing factor for new tenants. You could attract responsible young professionals flocking to your area for jobs. The more people in the area, the more tenants you could retain.
- What are the schools like in the area? Since property taxes fund public schools and higher quality neighborhoods pay higher taxes, checking out the standing of the local schools can give you a picture of your neighborhood’s attractiveness. In addition, proximity to good schools can attract responsible families to your rental property.
- Is the property in good condition or are there underlying issues you cannot see? You should consider hiring a professional property inspector to assess the quality of your property. The space may seem to be in good condition upon first glance, but it may have underlying issues with pipes, wiring, and other hidden systems that could cost you thousands in renovations and lost tenants in the long run. Always make sure the property is in good shape before investing, and that you can afford any renovations it may require.
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#3: Understand the Responsibilities of Property Management and Ownership
Becoming a rental property owner comes with multiple responsibilities that you have to prepare to assume. Tenants can have a variety of problems that you then become responsible for and will have to deal with. You may even find yourself fielding complaints and repair requests. If you have a full-time job on top of your rental property, this may end up adding additional stress and strain.
As a property owner, you will have to perform the following tasks quite frequently:
- Scheduling and responding to maintenance requests
- Collecting monthly rent payments
- Facilitating evictions and follow-up on late rent payments
- Screening and vetting potential tenants
- Holding property showings
- Marketing your property
- Handling complaints and tenant requests
- Mitigating potential lawsuits from unhappy tenants and accidents on your property
- Removing ice, snow, and other hazards from your property
- Handling regular landscaping and routine maintenance
These responsibilities can be overwhelming. But with the help of a property management company, stress can be alleviated and they can manage your property in an efficient manner. Managing a property is truly a full-time job, and you can hire someone to perform these tasks on your behalf.
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Make Smart Rental Investment Decisions
If you want to invest in a rental property, do your research first. Make sure that your finances are in good standing and that you have enough funds saved to cover all of the costs you may need to cover: renovations, licensing, advertising, property taxes, etc. In addition, make sure to carefully inspect the property’s physical condition and neighborhood to assess its profitability.
Finally, ensure that you have enough time and energy to take on the responsibilities of property ownership. If you need additional assistance, consider hiring a professional property manager. Good luck with your rental investments!