Investing money in rental property is not something new. In fact, lots of people are already interested in this business. There are TV shows everywhere showing how rental property investment is a forever promising business. However, the truth isn’t always that rainbow. There are many things you need to know before deciding to buy a rental property like real estate. In this business, at least you should consider expected rental income, annual expenses, and of course the risks. Therefore, buying an investment rental property should be planned adequately.
5 Consideration before buying rental property
Running a business should be taken seriously. You will always need a solid plan so everything works in your way. A plan will help you to decide the best strategies to take to reach your goals and avoid unnecessary mistakes. In buying rental property like real estate, you need to consider these things before:
1. House condition
This is the first thing should be included in your consideration since it influence your expenses. If you buy fixer-upper, you will spend much money in fixing the house. Repairing expenses should be estimated well or else you will lose much money and not able to gain any profit. Making thorough estimation of house repairment is a must even you can consult contractors to make clear calculation.
2. Goals of the returns
For the basics, many of investors apply 1% rule which can be calculated by math equation. Monthly return can be calculated using this simple rule. For example, you buy a house for $500,000, so you need to earn the returns in $5,000 per month. This is not absolute rule though, so you can set your own goal of returns based on thorough calculation.
3. Taxes of property
Like it or not, you should follow the law in which you should pay for taxes. High property taxes may result in low profits so that you need another strategy. Lower taxes are usually found in rural places though. So the location does matter in this case. High property taxes will lead to poor investment so finding perfect house is a must.
4. Condition of neighborhood
As mentioned earlier that location does matter in profitable rental property. The needs of the tenants should come as priority so that they will live comfortably in the house. You should consider ideal neighborhood based on its safety, accessibility to public facility, and other things that will make tenants want to live there.
5. Incidental funds
You need to have good management not only for the property but also your finance. The main goal of rental property investment is to gain profit. But you shouldn’t forget that incidents may happen anytime which result in unexpected expenses. Therefore, you need to make proper estimation for this matter.
Running this kind of investment needs a rational mindset so that you can make the right decision to gain profit you have set as your goal. Rental property investment is profitable business but it needs thorough plan in the first place.
Cecil Kuhn