8 Things to Consider When Investing in Rental Properties
If you are looking for new passive income streams, chances are good that you consider investing in real estate. And it should come as no surprise since buying income properties is considered one of the best ways of building passive income. And if you think of it for a moment, you’ll surely understand why.
Investing in real estate is a great chance to leverage your capital and increase your return on investment. Rental properties tend to appreciate in value with inflation, which means you can reinvest in higher value properties over time without much difficulty. In periods of inflation, rental prices increase, while mortgage payments remain stable. It makes buying income properties a truly inflation-proof investment.
However, investing in real estate is just as tricky as any other kind of investment and requires some knowledge. There are factors you need to consider before making your investment decision in real estate.
Location is king. Location is what can make or break your entire investment initiative. For the majority of potential renters, location is a critical factor when choosing among different rental options. Nobody wants to live in an unsafe neighborhood with poor transportation and no parks around. That’s why you should choose locations wisely. Pick a city with a growing job market and lots of opportunities in culture and entertainment. When choosing among neighborhoods, focus on safe ones with decent schools, low crime rates, and ample options for dining, shopping, and recreation.
Future Development Plans Matter Too
Gentrification is quite common these days, and sometimes it affects certain areas in a negative way. As a property investor, you should learn to be a forward-thinker and ask yourself these questions: What particular developments are planned for the area? Will they make it more attractive to potential renters? Choosing a rental property with these questions in mind will help you succeed.
Taxes Are Still There
Although most of the stories about tax benefits of real estate investments are true, it doesn’t mean you won’t need to take care of your taxes at all. To minimize your tax expenses, choose low taxes states, research the topic of mortgage interests and depreciation rates. Armed with information, you’ll be able to take the most out of your investment initiative.
See also: Other articles on property investments
Unexpected Spendings Will Happen
Those who’ve never invested in real estate before tend to believe that purchasing property is the only expense they’ll have to cover. However, it is far otherwise. Oftentimes a purchased property needs some upgrades and renovations, the same is usually needed when the old tenants move out and the new ones move in. Maintenance costs are real and should never be underestimated.
Property Needs to Be Managed
Yet another factor you need to keep in mind is that buying an income property is only half the battle. To turn a newly purchased real estate into a source of passive income, you need to take care of a property management aspect. You might decide to manage your rental property yourself or hire a professional property manager to do this for you. While the first alternative is more time-consuming, the second means splitting your income with a middleman.
1% Rule Is a Gold Standard
If you want to make a real estate investment that will pay off, you need to buy the right kind of property in the right location and rent it out at the right price. Sounds like a tough task? In reality, things are not that difficult. When buying an income property, you need to make sure you’ll manage to rent it out for at least 1% of its purchase price. If you research the purchase and rental prices in the area and realize it won’t be possible, then you’d better search for other options.
Don’t Forget About the Insurance
When it comes to real estate business, insurance matters. To save yourself money and healthy nerves, you should always choose the greatest insurance out there. Remember that landlord insurance is different from a general real estate insurance, so make sure to pick the one that will protect you from all possible threats and problems.
Exist Strategy is Necessary
It might seem a little counter-intuitive to start your real estate business with planning an exit strategy, but it can save you from all kinds of troubles. No matter how smart your real estate investment seems today, life is hard to predict. When buying an income property today, analyze the market to ensure you won’t have problems if you decide to sell it tomorrow.
Owning rental properties is one of the greatest sources of passive income. However, it is still a form of business, which means you’d better be armed with information to make your initiative successful. Research the above-mentioned factors in more detail before making your first real estate investment.