Purchasing a rental property can be a major asset to your financial portfolio. Having an income on the side can bring in good money, and can be very sustainable if the property is always rented. However, there’s always the possibility of ending up with a dud; purchasing an income property that loses money, be it by sitting vacant or simply having a bigger mortgage payment than monthly value in rent. There are three key things to consider when you’re planning to buy a rental property that may make or break your success.
First and foremost, consider the neighborhood you’re purchasing in verses the demographic you’d like to rent to. If the surrounding homes are mostly residential but you’re hoping to lease to students, you may find it hard to keep the place rented. Likewise, it’s highly unlikely that a family of four is going to rent a property where the next-door neighbor has a ping pong table in a front yard littered with aluminum cans. Either way, consider the types of leasers you’d like to have, and juxtapose them with the neighborhoods you’re shopping in before you make your decision.
Condition of the Property
Owning a home can be expensive, particularly if the one you choose to buy hasn’t been well maintained. A water heater that needs replacing might easily surpass the amount of money you make off the property in a month. You might think that an outdated kitchen won’t be a big deal to potential renters, but later find that you can’t find someone to sign a lease because other properties for a similar price point have more modern amenities. Both comparing the price and condition of other rentals in the area, as well as paying for a professional to do an inspection of the property before purchasing it, can reduce the risk of a home’s condition losing you money.
Cost of Rent in the Area
Finally, there’s the question of rent in the area. You need to know the market front and back in the area you’re considering purchasing in before making any steadfast decisions. That means understanding where most rental properties are located, which groups of people (students verses professionals verses family homes) they generally cater to, and most importantly, what they cost compared to what they generally lease for. The key here is not only breaking even, but making money. There’s no point in purchasing a rental home if the time and cost it takes to upkeep isn’t bringing you significant revenue after you pay the mortgage. Even if the housing market’s hot at the time, it could take years to make money off your property investment if it’s not being leased before you decide to sell it again.
Passive income through rental homes can be a great way to make money. These properties can also be stellar long-term investments if they gain value over time.
Are you ready to take the next step and purchase a rental property? Contact us and we’ll help you find the right place for your budget.