Investing in rental property can sometimes be a tough balancing act and while it could be what catapults you to financial victory, it could also very well be the path that leads you to investment turmoil. Read on to get a few essential pointers so as to ensure that the former is the case.
1) Know why you’re buying
There are basically three kinds of buyers: one who rides his luck and is in it for a quick win, one who is looking for a recurring means of income and another who bides his time and thinks of the long haul i.e. the speculator, renter and investor respectively. Knowing which category you fall into is the first step to success.
For the speculator, victory is all about getting your timing right by riding market upswings and staying wary as it approaches peak periods which are usually characterized by unexpected dips. Conversely, it’s more of a look-at-the-larger-picture approach for the investor who can bide his time to discover a prime property in an area that is brimming with potential but might not be quite yet there at the moment.
2) You need to be prepared to see out the financial journey in its entirety
Principle residences are quite easy to invest in but the same cannot be said for rental properties that require a great deal of financial endurance. You are likely to incur higher borrowing charges while the qualifications bar will also be similarly elevated as such properties are often viewed as particularly high-risk assets. So before you foray into the market, take a look at where you are financially and determine whether you can not only raise the capitals to acquire the property but also sustain the recurring expenses in terms of legal costs and appraisal fees.
3) Ensure the profits are on the right side of the scale
It’s now time to calculate your potential cash flow so as to determine whether your investment will be worth the plunge or not. Put you estimated annual revenue to one side and maintenance costs- such as insurance, property taxes, borrowing and utilities etc.- to the other, then determine which side comes out on top. If the difference turns out to be positive, then that’s exactly what you’re looking for. And it should not only be positive but also considerably larger than other potential rental properties also on the table.
4) Do your homework
Research is of the utmost importance if you are looking to pick out the most profitable venture on the market and there are quite a number of important factors to consider in this regard. From an economic point of view, get a feel of what the future holds for the neighborhood. Is there going to be an increase in job opportunities, and consequently people, in the area? What about the crime rate? You need to find the answers to such questions as well others regarding various other important dimensions like the infrastructure situation in the community e.g. the presence of a university nearby could mean seasonal occupancy.
Investing in a rental property requires a great deal of work so before you take the decision to do so, be sure you know just what you are getting into. You’ll also need to double up as a landlord and sort out everyday headaches such as noisy tenants, delayed rent and never-ending paperwork. Granted you could hire a property manager to take care of all the nitty-gritty for you but, either way though, you need to weigh the resulting equity against the amount of work you put in to determine if it is worth the effort.