3 Things to Consider Before Investing in a Rental Property

Investing in a Rental Property
Real estate has always been a wise investment. When you want to see your cash grow beyond anything a standard bank account can ever bring, wise investments in rental properties can prove well-worth their weight in gold. The trick is knowing how to find the right property in which to invest—and understanding what’s actually involved with being a landlord—before you find yourself falling down a money pit.

Before you go shopping for your next piece of real estate, here are three things you need to consider:

1. The Condition of the Property

You want to find a property that won’t devour your wallet when it’s time to get it up to code.

Plenty of people find fixer-uppers they can’t live without, and make a lot of profit by flipping these properties into desirable rentals. Before you endeavor in this route, you need to know what exactly is involved with putting it back into livable conditions. If you are new to the business, you need to be getting contractors out to the house once you are under agreement to make sure the roof, siding, foundation, electric, plumbing, etc.. are in good condition. You will also want estimates if anything needs to be replaced or fixed. One of the biggest mistakes novice investors make when purchasing a rental property that is a fixer upper is they do not allocate enough money for the renovations/repair costs.

  • Always get an inspection before you purchase a property. Sometimes it’s best to get two or three professional opinions if you’ll be renting your property.
  • Get estimates for the work before you make a decision.
  • Don’t bite off more than you can chew in the DIY department. Unless you’re a contractor by trade, many renovations will need to be outsourced.

2. Know How Much You Need to Bring In

Do the math before you begin your property search. How much rental income do you need to receive to fulfill your own needs? Factor in:

  • Property taxes
  • HOA fees
  • Maintenance and repair costs
  • Insurance costs
  • Capital Expenditures such as a new roof, siding, HVAC system, water heater, etc..
  • Vacancy
  • Delinquency

As you can see, the price tag can get big pretty quickly. Low-balling your rental price just to get tenants in the door can end up costing you exponentially in the end. On the other hand, if you price your property too high, great renters will simply find somewhere else to live. It’s a balancing act that requires serious consideration.

The 1% Rule is a good rule of thumb to live by. If you invest in, say, a $100,000 property, a 1% rental price would be $1,000 a month. Will that cover everything you need? If not, you might want to re-evaluate your choice of property.

3. The Right Neighborhood

Know what kind of tenants you’re trying to attract from the beginning. That will likely dictate the neighborhood in which you wish to invest. If you’re hoping to rent to families, be sure you know about the local school districts, parks, and family-friendly attractions. If you’re going for people in their 20s and 30s, condos within walking distance to shops and restaurants will be a great draw.

Purchasing the rental property is just the beginning. There are plenty of laws, requirements, and restrictions you must adhere to in order to operate a proper rental property. By hiring a premier property management firm they can help you to understand what it takes to attract high-quality tenants and avoid long term vacancy. When you’re ready, reach out to one – they’re eager to learn how they can help you manage your rental property.

2 thoughts on “3 Things to Consider Before Investing in a Rental Property

  1. This is all great information! I especially agree with knowing the status of your finances before purchasing a property. After all, whether you have tenants in the rental or not, you’re going to have to cover the mortgage. Plus, the housing market may fluctuate, so while you may want to bring in a certain profit each month, the market may not let you. So, do yourself a favor and calculate your expenses and evaluate your finances before you jump into investing. You’ll save yourself a lot of time and headaches. Plus, you’ll be able to build a strong and successful rental property business if you do your due diligence beforehand.

  2. Thanks for sharing this! Beyond finances, which I agree are important, I love that you mention the location. It seems so cliche, but the better the location, the more success you’re likely to have. It won’t matter how great your rental property is if it’s in an undesirable area. And then you’ll find yourself unable to lease your property or shorting yourself when it comes to the amount of rent you can collect. Make sure to check the neighborhood and beyond to ensure people will really want to live there and pay the rent you’re hoping to collect. It’s the only way!

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