Have you ever thought of owning an investment property? Real estate rentals have made most people rich hence there are enough reasons you should consider this a good investment. No doubt that real estate is among the fast ways to make money. However, experts say it is wise to dig deep before channelling your cash when venturing to any business. Therefore, this article discusses how and problems you should consider before purchasing a rental property.
Do your research
Owning a rental property is a good idea to earn income, but it is not a walk in the park. Having the right property, preparing the unit and getting tenants whom you can rely on come with many headaches. At some point, you will need strata specialist lawyers to help you through this journey of becoming a landlord. Being a landlord need you to be familiar with the toolbox. At some point, drywalls and clogged toilets will need to be worked on. Hiring a property manager will reduce profits; hence landlords with one or two properties prefer doing it themselves.
Have a more than 20% down payment
Generally, investment property needs a bigger down payment than personal properties. Investment properties have a string of requirements required to be approved. A not less than 20% initial payment is needed as mortgage insurance is not given for rental properties. Bank financing is a good option for getting the initial payment. A personal loan is a good example of bank financing.
Search a strategic location
The worst experience any landlord would want to have is to have a rental property in a declining area rather than a growing locale. A picking up or stable area is a good investment opportunity. If you want to make a good profit on the rental property, choose an area with good schools, a variety of amenities and, of course, low property taxes. Low or no crime rates, increasing job market, and easy access to roads will attract more renters.
Finance or pay cash?
Depending on your investment goal, you can pay cash or get financing. Cash payment can give good monthly cash flow but a lower annual percentage than financing your property.
Know and set your margins
Landlords should have at least a 10% return on investment. Approximately 1% value of the property will be used for maintenance. Repairs, property taxes, homeowners association fees, and monthly expenses are some of the costs considered.
Get landlord insurance
To secure your investment, a landlord needs homeowner insurance and landlord insurance. Generally, landlord insurance covers lost rental income, property damage, and liability protection. Homeowner’s insurance might not cover losses that arise from renting a home. To reduce cost, ensure you are adequately insured with homeowner and landlord insurance.
Consider unexpected costs
It is not all about upkeep and maintenance costs. Things like pipe bursting, damaged roof and destruction of kitchen floor will also take from rental income pocket. To ensure you have cash for timely repairs, estimate around 20% to 30% of rental income for such emergency costs.
When to hire a property manager
You can either hire a property manager or manage your property yourself. Property managers charge 8 to 12 per cent of the rent collected, taking profits. Getting an experienced manager is worth the cost as it will save you a lot of headaches. To determine if you need a property manager, answer questions like: can I get time to manage the property on my own? How good are you at dealing with neighbourhood disputes? How far is the rental property from my home? Do I have to be in control? Am I willing and able to handle tenants?
In conclusion, choosing the right rental properties for investment will help you make good money. Knowing when to hire a manager, considering unexpected costs, getting larger down payments, landlord insurance, and a good location will ensure profitable rental properties.
Monica is a passionate writer and content creator. Her interests include outdoor activities, fitness, technology, entrepreneurship and everything in between. Say hi to Monica on Twitter @monical_lee.
Cover photo by Virender Singh on Unsplash
