5 Factors to Assess When Investing in a Rental Property
Reading Time: 5 minutesBecoming a landlord and achieving financial stability is a goal many are dreaming about. A great property investment may open up the opportunity for you to reach your financial goals. If you are considering investing in a rental property, you have to make your own research first and not just buy an investment rental property…
Becoming a landlord and achieving financial stability is a goal many are dreaming about. A great property investment may open up the opportunity for you to reach your financial goals. If you are considering investing in a rental property, you have to make your own research first and not just buy an investment rental property on a whim. Proper planning and preparation are essential when investing in a property.
Table of Contents
Top 5 Factors
Location
Choosing the location for your rental property investment is very important. The location decides everything. You need to make sure that you are making a wise decision when you invest in a rental property. It should be in a neighborhood where tenants would want to live in. You can check if the vacancy rate in the area is low. Safety is very important as well, so make sure the area has a low crime rate. The ideal location should be near a hospital, schools, shops and public transportation.
The rental fee you can put out for a rental property differs due to its location. An area that has a high occupancy rate means a steady flow of rental income. The potential of the property to increase its value faster is highly likely as well.
One thing you can check to know if the property is a valuable and sound investment is by comparing its value throughout the neighborhood. If the value of the properties around the neighborhood satisfies you, then most likely the value of the rental property you want to invest in would be the same.
Know the costs
Real estate property investment requires high cash capital. The expenses do not end once you have completed the purchase of the property. The common mistakes of landlords are that they underestimate or overestimate the costs, the value of the property and the rent.
Before you can put out the property for rent, there are several processes involved, therefore, you have to have enough funds for it as well. You have to be aware of your actual budget and not go over beyond your capital. Find out how much repair costs, renovation costs, and maintenance costs are needed in the rental property you want to purchase. As much as possible, look for a property that only needs minor cosmetic retouch and do major upgrades once you have enough budget for it.
You have to be prepared with the costs you will shoulder while the property is vacant, utility bills, mortgage, insurance, inspections, taxes, and permits.
It is also essential to have emergency funds to cover for any unforeseen damages and prolonged vacancies.
Average Rent Rate
How much money will you make with the rental property you are investing in? You have to know the actual value of the property and how much you can have it rented out. Will it be enough to cover for all your monthly expenses and provide you your expected monthly income?
You might get over-excited and set the rental fee too high. This may cause a long vacancy period and may just increase your expenses. Start with knowing the average rental fee within your neighborhood and compare it with the value of your rental property.
Ensure that the property you want to acquire for investment can bear all your expenses and be able to provide you your expected profit.
Return of Investment
ROI is the most important thing when you enter the world of real estate. When you decide that you want to make a profitable business through rental properties, you must know your return on investment.
On simple terms, return on investment means:
- The cash you are putting into the property and how much cash you will be getting back from that investment
- How much cash flow you are getting every month
- Is it enough to cover all the expenses every month
There are a lot of factors that can affect your ROI too. The vacancy rate, maintenance costs, repairs, and other expenses are some factors that affect your ROI. If you will not get proper cash flow for the property, that means the ROI is potentially low, then that property is not worth investing in.
The current state of the Property
When looking for an investment property and you want to get it rented, you should aim for a property that has all its core pieces working. A property that requires a lot of repairs can be costly and may incur more problems in the future. You want a livable rental property for your future tenants. You want a property that will be functional, has less maintenance and repair expenses and reduces your liabilities. Fewer expenses mean more income for you.
Get yourself a professional and licensed inspector to conduct a thorough property inspection. Find out how much repairs are needed and how many repairs you can do yourself. Look for trusted contractors to carry out any major repairs and renovations needed in the property. Get estimates so you would know how much money you have to put into it.
If the repairs and renovations are too expensive, the property may not be worth it. You may not get enough income to cover all the expenses.
It is better to invest in a nice rental property and only add extra home features to attract better tenants. You also increase the value of the property and you can justify higher rental fees.
Investing in a rental property is an effective way of generating a stable income. Real estate is in demand nowadays. As the population increases, the demand for land also increases. The prices of the properties appreciate due to its high demand. Thus, if you are looking for a profitable business, you can look into investing in rental properties.
However, you have to be strategic before entering the world of real estate. It is a tough market and one wrong move and your investment can be wiped out.
Takeaway
It takes a lot of research and works to be a successful rental property investor and landlord. Take your time in buying the right property for you. Be realistic with your budget and finances as it may take time before your rental property starts generating your desired income. And when you have your desired property already, we can help you manage it at Green Ocean Property Management.
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