If you’re looking to generate some “passive” income, investing in rental property can be a good way to go. Everyone needs somewhere to live, and the proportion of people renting rather than buying has been on the rise for several years. However, it’s not risk-free, and it can take up a lot of time and effort. Before plunging into becoming a landlord, take a few moments to consider these three tips.
1. Choose the Right Property
Location is everything in real estate, and perhaps even more so when investing in rental property. Before buying, you need to know the area thoroughly. That’s why it’s a good idea to buy where you already live or close by. You’ll want to know if there are large employers or a university nearby, schools in the area, and if there are local amenities that will bring in people that are looking to rent for a while. And if you don’t, make sure you do some research to find these things out.
Once you chooses neighborhood, it’s time to find the property you want. While a fixer-upper might be priced right, think about how much money you’ll need to put in to make it rentable. Then consider how long that’s going to take. It’s important to keep in mind that while it’s undergoing painting and repairs, it won’t be producing any income.
2. Understand the Economics
Your goal is to make a return on your investment, so income must exceed expenditure. However, calculating that simple balance involves a lot of factors.
First, there’s financing. If you are borrowing money for the property, make sure you can make a large enough down-payment to yield positive cash flow. If not, look for a less expensive property. Check out taxes, which can be steep in areas where rental demand is strong. Then look at insurance and maintenance costs. Don’t forget that maintenance splits into work needed to make a property rent-ready(painting and cleaning), and ongoing maintenance like roof repairs, a new water heater, and so on.
Finally, remember that your property probably won’t be occupied 100% of the time. Factor in an allowance for periods when you don’t have a tenant or tenants.
3. Decide if You Will Manage It Yourself
First-time rental property investors can easily underestimate the time and work required. You’ll need to find and vet tenants, get lease agreements set up, pay bills, and take care of any necessary maintenance. This complexity is why many successful investors choose to work with a property management company.
These property experts will take care of many or all aspects of managing a rental property, so you don’t have to. Services and rates vary, so the best approach is to check out their websites. Look for a comprehensive range of services, transparent pricing, and clear explanations. And if you have additional questions or want to speak to a team member before you begin, give them a call. They’re happy to provide you the clarity you need before you start your investment.
Do Your Homework First
Investing in rental property can be a lucrative undertaking. Choose the wrong property or make a mistake in calculating income and expenditure, and you could find yourself in a financial hole for years. Even if you buy wisely and have your finances figured correctly, property management can still take more time and effort than you realize. Consider evaluating the above items carefully before taking the plunge, and you’ll be on your way to generating investment income.