At a time when mortgage rates are low and home prices across the country have dropped, it isn’t surprising that people who want to invest in something other than the stock market are looking to real estate as a good potential investment. The search for good real estate investments leads some prospective buyers to consider purchasing an income property. Anyone who is considering the purchase of a rental property needs to look at it as a business investment—one that requires an entirely different set of considerations.
Look Over the Rental Market
Before purchasing any type of rental or investment property, the prospective buyer needs to look at the market in the location where they are considering the purchase. Look at the prices of property in different areas, and the rent that different properties command. Consider up-and-coming areas because as property values increase, the value of the investment will increase substantially over time.
Expenses Associated With Property
Any real estate investment will have fixed and variable expenses, but those for a rental property are very different. Fixed expenses include yearly property taxes, property insurance and routine repairs and maintenance. Other fixed expenses may include property manager wages or maintenance fees.
Variable expenses include mortgage payments for times when the property or units in the property are empty. Plumbing emergencies and furnace repairs are also considered variable expenses. An investor in rental property should always have six months of mortgage payments in savings as a safety net.
Understanding Risks
There are multiple risks associated with investing in rental properties. Study the state and local landlord/tenant laws to understand the rights of both parties. A trip to the county court house to look over cases involving rental properties and disputes may offer more insight into those risks. A landlord incurs legal expenses and lost rent when having to evict a tenant.
Consider Time and Ability to Invest in Property Management
For a large property where there are many renters in multiple different units, the cost of having a property manager may outweigh the expense of not having one. Having a property manager onsite to take care of minor repairs and maintain the cleanliness of the premises will assure the property owner a better caliber of tenants. The property manager will keep an eye on the entire property to make sure that tenants don’t destroy property or disturb other tenants.
Owning any type of property is a huge undertaking and investment. The road to the success of an investment property is a long one, and it won’t be successful unless the property owner is willing to accept all of the risks, costs of upkeep, maintenance and improvements. A landlord that is committed to ensuring the happiness of tenants is one who will attract high quality long-term tenants, and this is the key to the lasting success of the investment.