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.
Tip #1 – Choosing the Right Property
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.
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.
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.