5 Key Things to Consider Before Buying Your First Rental Property
Purchasing your first property is a dream come true for many. It isn’t an easy height to attain, and neither is it an easy process to get to the point of owning one, however. If you’ve chosen to use your property for rental purposes and for reasons such as bringing in extra steady income, then you still have a long road ahead of you. Buying a property for rental is similar to buying one for personal use, however, there are other key factors that you’re going to need to consider in order to ensure smooth sailing when it’s time to begin renting it out. This article will, therefore, outline five things to take as food for thought before closing that deal on your first rental property.
One of the first things to look out for when embarking on your journey to buy your first rental property is whether or not you can afford it. In order to determine this, you would first need to decide on how much you’re willing to spend on a property in total. Once that’s been determined, you can then begin shopping within your budget. When deciding on your budget, don’t forget to include all other costs that are often associated with buying a rental property. Some of these expenses include taxes, insurance, refurbishments, as well as any necessary repairs. You should also note that if you’re using a mortgage as a means to buy your rental property, lenders are likely to ask for 25% upfront, so you should keep that in mind when calculating costs as well.
When taking the big step towards acquiring your first rental property, it’s important that you choose the location carefully. Failing to do so could result in a number of issues including finding it difficult to acquire tenants. One of the ways that the neighborhood you choose could positively or negatively affect you is regarding how much you can charge prospective tenants for rent. If, for instance, you choose a property in an area where the average cost of rent is $600 per month, you may find it difficult to rent it out for $1,500 monthly. This could then affect your return on investment and leave you at a loss if you bought the property expensively. One of the ways, however, to find a profitable deal in a good neighborhood may be to hire a real estate agent such as Your Grand Team who will help you locate the type of property that you’re looking for. Real estate agents tend to have a wide variety of properties as well as in-depth industry knowledge, so a good one is likely to help you find what you need. You should also note that neighborhoods that tend to have high crime rates, low-income housing and bottom of the tier schools aren’t likely to make good investments either. Depending on what you can afford, try your best to aim for the middle or higher.
One of the hurdles that you’re going to face after closing the deal is actually finding tenants to live in your property. If this is your first time, you may find it especially challenging if you don’t do your research beforehand. This means that before purchasing a property, you need to have prospective tenants in mind. Think about the ideal person you would want living in your property, what kind of space they would need, whether they would require parking, or if they’d need a spacious living room. All of these things will help you determine what kind of property to aim for. You may also need to consider a broker to help you find tenants who could add to your monthly expenses. You should, therefore, factor this into your calculations when drawing up your budget if you decide to use one.
Another thing to ponder on before buying your first rental property is who’s going to manage it. If you’ve decided to take on property business full-time, then you may have decided to manage it on your own. If you don’t have the time, on the other hand, you may want to get a property manager to help you instead. This would especially be helpful if you go on to own a number of properties in the future. Generally, they will help you manage tasks such as meeting with tenants, carrying out background checks, fixing broken things and evictions. It is said that as a rule of thumb, a property manager may cost anywhere around 10% of the rent you bring in. It may seem a little steep, however, ensuring that the property is managed well is one of the things that could help you keep tenants for longer and attract new ones as well. You would, therefore, need to weigh out the pros and cons of hiring a property manager. It will ultimately boil down to either spending more to save you time and stress or saving money by maintaining the property and tenants on your own.
Damages to Property
Whether you like it or not, rental properties are going to need maintenance. What you don’t want, however, is to end up doubling those costs by ignoring signs of a house that needs major renovations. Before you buy a property, it’s important that you check for any damages that could become detrimental later on. Some to note include water damage, erosion, rodent droppings which could indicate pest infestation, bad floor plans, foundation problems, and damaged windows. Your primary objective should be to find somewhere that needs as little work as possible in order to avoid exorbitant renovation costs or dissatisfied tenants in the long-run. Also, if you did an inspection and found a few things that the seller agreed to fix, try and ensure they’re properly fixed before going ahead to buy the property.
Everything in life has its challenges, and the same can be said for property renting. Although it isn’t easy, if you take the time to do enough research and carefully plan ahead, it could be a lucrative venture. Hopefully, some of the things that have been mentioned in this article will get you on the right track.