Published On: Tue, Nov 12th, 2019

Here Are Four Things to Consider Before Investing in a Rental Property

Rental properties can be great sources of secondary income, but they are far from risk-free. If you’re thinking of getting into the landlord game, here are four things to know before you buy a property.

1. Cash Flow Rules Everything

You have to consider cash flow before putting money down. Think of it this way: if a renter isn’t willing to pay more than the monthly mortgage would be, then why would you put your own money into this?

Carefully review appraisal and home inspection data. This will tell you the value and condition of the home as compared to neighboring houses. Homes may look great, but if they need brand-new plumbing, you won’t recoup your expenses.

Find out how much you could advertise the rental for by checking similar-sized rentals in the area. You might be able to go up or down depending on the property’s condition and amenities (say, a coveted private parking spot in an urban location). But still, you can’t go too far out of the range of what’s acceptable. Once you know your potential rent intake, any upfront expenses for repairs, and the assessed value of the home, you can crunch the numbers to evaluate the cash flow. If it’s a net positive, move ahead.

photo/ mohamed Hassan

2. Hope for the Best, Expect the Worst with Renters

You would hope to have the property rented 100 percent of the time, but you must prepare for vacant periods. This means having money set aside to cover the mortgage while you are renovating the property or advertising for tenants.

Your real estate agent can help you better understand the rental market in a particular neighborhood, and they may even be able to advertise the property for rent. That said, you’ll have a better experience renting out properties that are in great condition and in good locations, so be choosy.

3. Keep a Cool Head

Real estate is business; keep your emotions out of it. If a property goes under agreement before you can look at it, or if a place that seems promising turns out to be in rough shape, keep looking—and keep your eye on the numbers.

If you make emotional decisions, such as buying a house in a neighborhood simply because you would like to live and you haven’t done your due diligence and research, you are likelier to experience buyer’s remorse.

4. Know What You’re In For

Rental properties may seem like passive income, but it will surprise you how much work it takes to be a landlord. You will need to screen tenants, perform property maintenance, make emergency repairs, advertise vacancies, and much more. It takes time away from your professional and personal life. Property managers can lighten the burden, but you’ll want to choose partners who have a positive reputation and can add value to your rental.

By following these tips, you can set yourself up for success in the long-term and avoid mistakes that could make your experience an unpleasant one.

Author: Pankaj Deb

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