Investing in a rental property is a big undertaking and it’s a major decision to make, it’s not something anyone should rush into. Though investing in a rental property can be extremely profitable and can boost your income considerably, that’s not to say that it comes without challenges. Here are three key things to consider before getting started.
Do You Actually Want to Be a Landlord?
There’s a big difference between owning a rental property and being a landlord, and being a landlord requires a lot more work. As a landlord, you have to keep tenants happy and this could involve taking calls at inconvenient times or organising emergency repairs. As a landlord, it’s hard to relax. Before you go ahead and purchase a rental property, think about whether you are ready to take on the responsibility of being a landlord. If you aren’t, you may want to work with a property management company. Rather than having to stay on top of rent and deal with late payments, a property management company can do it for you. It’s a good way to reduce the stress, lighten the workload and give yourself a break. Though your profits may be lower as you will need to cover the cost of a property management company, you won’t need to play a major role in the day to day tasks.
Can You Afford To Invest?
Investing in a rental property is a big financial undertaking, one that not everyone is able to handle. There are the obvious expenses, but also those that are unexpected. For example, have you taken into account the property taxes and building insurance? You may have enough to purchase the property, but do you have enough for renovations and repairs? You also need to think about whether the property will bring in enough money to cover additional expenses, as you don’t want to be out of pocket. Building repairs, a property management company and late rent payments quickly add up. It’s important that the rental property will bring in enough money to account for these.
Before purchasing the property, you will need to ensure you have enough money saved to handle the expenses that will occur. You won’t be able to build up savings from the rental income right away, so you will need to source the money from elsewhere. If the plumbing breaks, you will need to fix this. If the boiler breaks, you will need to fix this. These are unexpected costs that a landlord must cover.
Which Property Will You Choose?
Once you have decided that you can afford the investment and you are confident in becoming a landlord, you need to choose a property. The property should be a good fit for you, your budget and your portfolio. When you are choosing a property it’s all about location, location, location. Think about the type of tenants you want to rent to and the neighborhoods they will be interested in, then look for a property that matches. Neighborhood amenities, schools, entertainment, restaurants, avertan rent and crime rates are all things to consider.
It’s also important to take a look at the property itself and work out what some future expenses may be. If the property needs a new roof or a new HVAC system, this will be costly. If you don’t have a lot of money saved for improving the property itself, you may want to choose a new property that will need fewer repairs. The final thing to consider when choosing a property, is whether the property will bring in the rental income that you need to turn a profit. If you are buying in an area with low average rent, you are unlikely to make as much as you would renting elsewhere.
There are a lot of challenges that come with buying a rental property, which is why it’s not an endeavour that works for everyone. In order to achieve success with a rental property, you need to carefully consider your options.