Whether you’re looking to purchase a rental property to diversify your portfolio or start your investing journey, it can be very tricky for a first-timer.
Investing in real estate can be very exciting because you own a significant physical asset. While many people invest in rental properties for long-term rents, you can also look into renting short-term or buying a worn-out property and selling it for a big profit after renting it out for a while to establish value.
Regardless of your plans with the rental property, here are some tips to help you invest in rental real estate.
How “Hands-On” Are You Going To Be?
The most important thing with investing in rentals is finding a good property and managing it properly. If you have a good property but don’t know how to manage it, your venture might fail. The same goes if the situation was the opposite.
Since you don’t have experience in managing a rental property, you should consider hiring a service to handle this first property for you. If it makes sense in the long run, you could continue with it or learn how to manage the property yourself.
Keep in mind, there are many benefits of hiring a service. Not only will they handle all the hard work for you, but they can also offer other services like a rent guarantee scheme where you don’t have to worry about late payments or vacant property.
Location, Location, Location
After figuring out the management part, you need to find the best rental property to start.
Unlike buying a house or apartment for yourself, investing in rentals opens up many more possibilities because you don’t have to restrict yourself to the areas around your workplace or near your kids’ schools. You can buy it anywhere.
However, you also have to figure out how much rent you can make in a particular neighbourhood and compare it to your target rental income.
When you’re buying, first think about the types of people you want as tenants. That should narrow the locations. Then, you should consider property taxes in an area, the average crime rates, and the future of the neighbourhood. These things can help you buy a good property for the long term.
Finally, you should look into nearby schools, gyms, parks, shopping centres, public transportation, and entertainment.
When you narrow down your list to a few areas, you can check the number of vacancies in the area. If there are many listings, then you should consider steering clear.
Understand the Financing Options
When you know the area you’re going to buy in, you may have an estimate of the average price of a property in that neighbourhood. Now, you can look into financing options for your investment.
Unless you’re planning to buy yourself, you will need to find a good lender. Keep in mind, there is an incredible range of options from conventional mortgages to government loans and religious-specific home financing.
Depending on the type of property you want to purchase, you may have to look at different kinds of loans. For instance, there may be a mortgage specific to duplexes and you can’t buy a single-family home under that option.
Calculate an Estimate Cash Flow
After going through the above, you should have a very good idea of what it will take to buy a rental property in an area. Now, you need to find out if the investment is lucrative for you.
You should still have money coming in after deducting all the expenses. If that’s not the case, then you should re-evaluate your options and figure out where you can cut costs or find a different property.
If you’re seeing very less cash inflow, then you should consider getting guaranteed rent services to make sure you’re covered even when the property is vacant.
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