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Investing in rental housing is one of the best ways of accumulating long-term assets and wealth. The key here is finding the best mix of location and demand that maximizes your returns. With forward planning, you will be bringing in good money from your tenants, but how do you navigate the property world to own your first rental property? If you feel stuck on the "how", here are our five suggestions to get you started.
1. Research
Before buying that property, do your research ahead of time. Bad property investment decisions can end up engulfing your business. Decide on whether you prefer a multifamily or single property, the price range you would like to charge, and where you wish to have it located. Ask yourself if you will be managing it personally or engaging the services of a property manager.
Use a cap rate calculator to give you a quick assessment of how much your property is likely to be making and how it compares to other similar properties in your location. This line of questions will help you develop a clear goal on what you want and how to go about getting it.
2. Location is key
Finding the perfect location for your property is critical. It will determine other factors like what the property is used for, how it is run, how much rent will be charged, and contribute to its value and demand.
For example, if the rental property is located near campuses, student housing would be the ideal use. The type of campus might also determine what rent range you charge.
3. Engage a real estate agent
To get yourself the best possible rental property deal, engage a good real estate agent. Being their area of specialization, an agent is well aware of properties available in the area you are interested in and the price range of those properties too. When you decide what you want, where, and in which cost range works for you, a real estate agent will help you seal the most suitable buy deal for your first rental property.
4. Choose the right financing
People buy rental properties for either monthly cash flow or long-term appreciation. When choosing your mode of financing, consider your reasons for the investment. If you opt for loan financing, if the monthly payments are high, your cash flow will be less. Financing institutions might also require that you secure a down payment, so you will still need to have consolidated some savings.
Consider other fees like property manager fees, homeowner's insurance, maintenance fees, and emergency repairs funds as they reduce your margins from the rental income. Weigh all your financing options first before you commit, as you might end up not receiving the monthly returns that you hope for.
5. Know your legal obligations
Landlords operate under strict legal obligations meant to protect both the landlords and the tenants. Know what laws you will be expected to abide by, as ignorance will derail you faster than you can even comprehend. The legal aspect does not start and end with signing the tenancy agreements with the tenants.
They are laws on how you should maintain your property, how to engage with your tenants, laws on rental increment, laws on taxes from rental income, and so much more. Learn the law that applies to the kind of investment you are interested in and take proper legal steps towards risk mitigation.
Endnote
Buying that first rental property sets the tone for how you proceed with your rental portfolio. For you to realize success with rental properties, you need to start on the right footing. With these tips, you will be on your way to making your best first rental investment decision.
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