Purchasing a rental property is a major decision. And while there are many ways this type of investment can bring in a profit, there are also several expenses and other factors to keep in mind. Learning about these issues after purchasing a property won’t be very helpful – and could lead to a lot of regrets.
Fortunately, by conducting thorough research before you make an offer on a property, you’ll have a better idea of what to expect. Knowledge is power – and because real estate investing is a serious venture, you don’t want to overlook any important aspects of it.
To help you prepare yourself for a future real estate purchase, we’re discussing three important things to consider before investing in a rental property.
1. Are You Sure You Want to be a Landlord?
Not everyone likes to be a landlord, and many people lack the patience for it. If you don’t enjoy dealing with people or aren’t comfortable handling the legal aspects of a lease, being a landlord might not be right for you.
Beyond the daily duties of being a property owner, you’ll also need to find tenants, handle maintenance and repairs, and more. Plus, if you struggle to find reliable renters, your property may sit empty at times, costing you money. All of these things must be factored into the equation before you make a real estate purchase. If they aren’t, you could end up with greater expenses and fewer profits.
2. Is a Rental Property in Your Budget?
Before you invest in a rental property, you’ll want to take property management, taxes, and other expenses into account. All of these costs can add up quickly and could be shocking if you’re not aware of them beforehand.
Owning a rental property isn’t simply about making a purchase and watching the income pour in. You’ll first have to pay off the mortgage on your building, and even once that’s done, there will still be taxes and insurance to cover. Some landlords choose to pay part of the utilities as well. There are also maintenance and repair costs to consider, including items that could break or become damaged unexpectedly. Having enough funds from the beginning is very important for an investor.
3. Do You Know How to Work the Numbers?
The quality of your purchase will set the stage for how well your rental property performs over time. That’s not to say that you can’t turn around a bad investment, but it’s hard to do and should be avoided. The goal is to get the property for a great price, have few – if any – repairs or updates to make, and keep it rented out at fair market value.
You should also have an idea of your property’s expected net operating income, return on investment, and cash-on-cash return. Any investment is a risk, but the more you know about it going in, the better the chances you’ll make a good decision.
The Bottom Line – Do Your Research
Investing in a rental property isn’t something to fear. As long as you ask the right questions before you get started, it’s likely to be an exciting and rewarding venture. The more you know about your investments, the better off you’ll be when it comes to seeing financial success from your properties, both in the short and long-term.