Buying a rental property can be a very financially rewarding decision. However there’s no denying that it involves a lot of research beforehand. Here are the top things to consider before investing in a rental property.
1. Location is Everything
It definitely pays to take the time to personally inspect the neighbourhood. Is it close to potential employers, parks and schools? Are there sufficient lifestyle amenities nearby like shops, restaurants and cafes? Is it within about ten minutes walking distance to public transport, but not right on top of a train station? Is it within about 12kms from a CBD? All these factors are what tenants look for when searching for a rental property and a quality neighbourhood is integral for keeping good tenants. Additionally, if you plan to manage the property yourself, it will make things easier if the property is close to your own home.
2. Research Going Rents
Conduct some research with local independent real estate agents, property managers and other renters in the area into how much the going rate is for renting different kinds of properties. This will give you insight into how much you can realistically expect to charge for rent. Also do some research with the local council’s town planning departments into what is going on in the area. Is the street going to be over-run with units in three years’ time? Is there a shopping centre planned for building across the road? The more you know the better. You can even go to the extent of researching the history of the rentals you have in mind. Property records are easily obtained from the city hall or county courthouse.
3. Personal Finances and Insurance – Get These Sorted
You should never make the decision to purchase a rental property unless you have a healthy emergency fund. It’s a good idea to sit down with a mortgage lender or broker and work out whether you have enough to make the investment before you start spending your precious time on searching for properties. Get pre-approved for an investment loan and then be sure to organize plenty of liability insurance once you’ve made your investment, to protect yourself in the event that someone hurts themselves whilst living in or visiting your property.
4. Calculate the Costs
Free property investment calculators are available online for you to utilize to calculate the property’s fair market value to ensure you don’t get ripped off by the seller. You’ll also need to have in mind the maintenance costs of the property. Determine how much the maintenance expenses will be, which will enable you to determine how much you’re expected to spend in one year to manage your investments. This way, you’ll be able to check if the profits you gain from your rental property cover all the maintenance costs while still leaving a nice profit. After all, return on investment is always the priority.