5 Things To Consider When Buying a Rental Property
Published online: May 15, 2019
/ Property Owners
Everyone wants a place to call home. It makes us feel safe. We don’t just want to go to someplace at the end of each day, we want a home where we can relax and make memories.
Only 64% of Americans are homeowners. That leaves a lot of people who need to utilize rental property. Owning and renting out property is a tried and true method of making money, if you do it right. There are many factors that you should be aware of when looking to invest in property. Here are 5 things to consider.
What is your financial situation like? Do you have the capability to make a large down payment on your property? The less you pay up front means the more you have to pay monthly, likely leading to increased rent on your renters, which pushes a lot of people away.
Unless you have a ton of cash reserves, you will probably have to borrow money to purchase a property. It is important to identify a set range that you can afford without borrowing too much, you do want this to turn a profit after all. Money lenders may also be hesitant to lend you sums of money that they feel won’t be paid back effectively.
Location and Target
Where is your property located? Who will be renting? These are important questions to consider. If you buy a home that is rundown you shouldn’t expect an affluent tenant. Making sure the location matches the needs and lifestyle of your intended tenant is critical for success. A family with four kids and lots of debt can’t afford to live in an expensive house that is an hour drive from work.
What will make people want to live in your rental? Maybe the rent is a little high in their opinion, but the school district is great and work is a short commute away. Maybe the rent is a bargain and that makes a longer commute worth it.
What is your plan to make money? Are you just assuming that an amazing tenant will show up, pay more rent than your place is worth, and take great care of the place?
Having a plan means knowing how you will market your rental, what your expenses and cash flow will be, and knowing how to manage the property. Property management groups are great for these problems as they handle the burdens of these tasks.
Is it worth it?
A cost-benefit analysis would be helpful here. You should make sure that all the money, time, and effort you will put into this venture will end up being profitable. Not just profitable, but worth it. Really, that is the biggest question, even if things start slow and you don’t turn a great profit for a while, are you going to be okay with the pace at which things are moving. If you don't have that patience, then this probably isn’t a great business to be in.
Needs vs Abilities
This aspect of investing in property is a tricky one. This simply means looking at the property you are interested in buying and analyzing what it needs, and then being able to see if you have the capability to meet those needs.
You really shouldn’t buy a rundown home if you don't have the skills and ability to fix it up. Fixer-uppers are sometimes viewed as good deals because they don’t cost very much, and once fixed up would provide a great return on your investment. The problem is if you can’t do this yourself, you will often spend just as much money having the property fixed up as you would buying a nicer home. Even if you can fix it up, the time and effort that go into remodeling an entire house are extensive, and the expenditure of your time will essentially equal money.
Many people are interested in property ownership. It can be a very sound addition to your income if done right. Part of successful property ownership (renter population, the economy, etc) is out of your control. Keep these things in mind and with some smart decisions you can own and rent a nice piece of property.