Buying an investment property to rent is a smart and tried and tested way to invest. A real estate investor makes money in two basic ways, either by buying and reselling a property after the property value has increased or by buying a property, holding it and renting it out.
This article will focus on the second method,
that of buying a property and holding it with a view to making money on that
property by renting it.
Likely you are interested in this real estate
investment idea because you want to increase your wealth and start building
toward complete financial freedom.
Although you may have reservations and hesitate
because the idea of being a landlord is less than thrilling to you, this
strategy can be a very solid way to increase your wealth when pursued carefully
and responsibly as a mid to long term investment strategy.
If you are looking for more positive reinforcement about this strategy check out this article by Erin Eberlin outlining 5 reasons why buying an investment property makes sense.
That being said, as with any investment, it’s
wise to get some tips before diving in head first.
Let’s take a look at 3 basic tips together
before you finally decide to become the next big real estate magnate.
Although a large or multifamily property can
represent a fantastic investment for many it might be wise to start small,
especially if you are not yet sure if this is the type of business for you.
For example, if you are planning on managing
the property yourself, you might need to at first in order to make it work
financially, are you at least a little bit comfortable with the tools?
As you gradually and steadily increase your
portfolio of properties it will make sense to hire a property manager or
property management company to take care of the day to day running and
maintenance of your properties for you. In the meantime are you willing to get
your hands dirty? If not then you will have to take into account the costs of
hiring someone to do this work on an ongoing basis for you.
Once you do decide to invest, the most
important thing of all is to buy the property at the right price. This can be
done by taking the time to become knowledgeable about the area in which you
locate your investment property. Speak to as many locals and rental agents as
you possibly can. Local knowledge is a game changer, especially when
considering the little details.
For example, those who are very familiar with
the area can even tell you which side of the street is considered more
desirable than the other.
Ask
yourself the following questions and do your research to find the answers:
What are other properties selling for in the
area? What is the profile of the typical renter in the area? Does the property
suit that particular demographic? How is the local job market? Are there any
improvements planned for the area? How are the schools? What is the crime rate?
Are there lots of amenities in the locality?
Armed with this information as well as a
healthy dose of patience you are ready to start negotiating.
Tip #2 – Crunch the Numbers
This kind of property investment makes sense
when you take a long-range view. Make certain that you can maintain your
mortgage repayments over the long term. If you have to prematurely sell your
investment property because of mounting financial pressure, this could mean a
worst case scenario of losing money.
It’s wise to pay off as many of your other
debts such as student loans or outstanding medical bills as possible before
adding a rental property to your list of commitments.
On the other hand, you may be surprised that once
you do purchase an investment property it can be quite painless to meet the monthly
loan payments.
You will be earning regular monthly rent and those
rents will more than likely increase substantially as time goes on. Be aware
that you will have to come up with a larger down payment for the purchase of a
rental property than you did for the home that you live in.
Make sure that the net rental yield will be healthy, do your research to see what is considered appropriate for your market. For help with calculating the net rental yield check this article by James Kimmons.
Tip #3 – Take Advice from Professionals
Before you decide to invest in a property you
should consider getting help from professionals who can advise you on such
matters as real estate, legal, tax, and financial decisions.
Getting proper, professional advice at the
outset will cost you more at the beginning but it will definitely save you
money in the long run.
Summary
Every sound investment is about weighing the
pros and cons.
The pros of investing in a rental property are
many; a rental property provides you with an extra income leaving you
relatively free to focus on your other pursuits.
In theory, your investment property will only
continue to steadily rise in value. There are many unexpected tax advantages
when you own a rental property.
The cons are as follows; tenants can be
stressful and time consuming to deal with. Depending on how high your income
rises you may be subject to punitive tax measures.
The cost of getting started can be high. You
will need to maintain tenant occupancy in order for your investment to be
profitable.
However, if you have taken these variables into
account and you follow the above tips you may well be ready to take the plunge
into real estate investment. Who knows you might be about to make a big splash
in the real estate investment market, we wish you every success!
One thing that every successful real estate
investor needs in today’s market is a professional online presence, starting
with a website that will enhance your credibility.
To get your website up and running today please connect with the DDW team.
Or you can take a look at the features in our professionally
designed website.
