Buying a rental property might be a great idea. A lot of people have been able to make a true fortune through these investments. However, for someone who doesn’t know what he’s doing, this kind of investment could be a true failure. To make sure that this doesn’t happen to you, there are a couple of things you might want to take into consideration. Here are the key things you should know before buying your first rental property.
Paying down personal debts
Even though carrying personal debts for savvy investors isn’t a major problem, this could become a serious issue for an average person buying his or her first rental property. Student loans or unpaid medical bills are just some of the debts you might have and you might pay off as soon as possible.
If you expect the return from your real estate to be greater than the debt you have, then you won’t have to necessarily pay down the debt before buying the rental. As soon as you properly and carefully calculate these numbers, you’ll know exactly what to do.
Finding the best location
Even if finding the right location seems like an easy job, this could actually take some of your time. Finding a rental property to buy won’t be a trouble, but finding one in the right location could get tricky. What you don’t want is to end with a rental property in a declining area.
The kind of property you want to invest in will have low property taxes and a lot of amenities. Parks, restaurants, and movie theatres are what makes a rental property profitable. A decent school district, a low crime rate neighborhood, and easy access to public transportation are also the characteristics of a good rental property location.
Buying or financing
When deciding on such things as whether to buy or finance, you should have your investing goal in mind. Do you want to have a positive monthly cash flow or do you want to have a greater return? Expert property solicitors might be able to help you make such decisions as this one.
Some things that you should also keep in mind are rental income, tax, income tax, and depreciation which will affect your annual earnings if you opt for buying. On the other hand, if you opt for financing, you’ll have to think about compounding on the mortgage and operating expenses.
Calculating the margins
When buying a property rental, you should keep in mind that there will be a lot of expenses. As an individual, you could expect a 10% return, since you won’t be paying any staff on the property. However, there are some other costs that you will have to cover.
For instance, maintenance will require at least 1% of the property value annually. Homeowners’ insurance and property taxes are also important when it comes to thinking about the costs. You shouldn’t forget about the monthly expenses either – landscaping, pest control, and occasional repairs. Not only that, but unexpected costs can also occur – roof damage due to poor weather conditions or burst pipes, so keep those in mind as well.
Getting a homeowner’s insurance
Buying a new rental property isn’t just about spending some money and then getting more. It’s a lot more. For instance, protecting your property is another thing you should do. A lot of unexpected things can happen and protecting your property against them is crucial.
Investing in landlord insurance can help you protect the property. The rental will be great in case of property damage or lost rental income. You won’t have to worry about liability protection either, as this insurance will cover that as well.
Determining the return
Whenever you decide to invest in something, you expect to get something back. As far as this kind of investment is concerned, you should know exactly how much you can expect to get in return. As soon as you’re able to calculate this, you’ll know whether the rental property is worth investing in or not.
You should know that, for the first year of renting, the expected return is around 6%. Since this number is expected to grow in the years to come, you’ll be looking at a good deal.
Knowing the legal obligations
Finally, you need to make sure that everything you do is in accordance with the law. The landlord-tenant relationship needs to be fair and transparent, and, most importantly, it should go according to the law.
Both you and your tenants will have certain rights and knowing them will be necessary. That will keep you safe from making mistakes regarding lease requirements, eviction rules, or security deposits.
Conclusion
Buying your first rental must be an exciting experience. However, keeping your mind calm and thinking about every step of the process is essential in doing a good job. With these tips, you’ll ensure a good deal sooner than you were hoping!
