Is Investing In Rental Property A Good Move?
Investing in rental property has become increasingly popular in recent years. That isn't surprising if you consider the potential rewards: you couldn't only generate rental income, but profit from increasing housing prices too. But is investing in rental property is a good move ?
Evaluate the market
Like any other business, rentals are subject to the basic forces of supply and demand. If apartments are in short supply, you probably won't have trouble filling yours. When you're trying to generate positive cash flow from a rental property, vacancies are maybe your greatest enemy. They cost you money and generate no income in return.
Your 1st line of defense from vacancies is the best evaluation of the rental market before investing. Talk to Realtors and property managers in your area, and check the frequency of rental listings in the local paper. You have to keep in mind that certain neighborhoods, such as those near schools or universities, might have higher demand for rentals than other people.
Pointers To Consider As A Real Estate Investor:
1) First if you want to make a good move you have to talk to different property owners and pick their brains. Find out what it is like to be a landlord by talking with different rental property owners of similar properties to get few perspectives on the realities of the business.
2) Check sales comparisons. Determine going rates for similar properties and what gets covered in the pricing of rental units for sale.
3) Consider the possibility that not all units will be rented immediately, leaving you with a lower amount of income in the 1st several months.
4) Know what your basic expenses are going to be: start out by tallying up the amount of your daily mortgage payment as well as the cost of your property taxes. Property taxes that are paid yearly could be divided by twelve to get a monthly tax figure.
5) Check into the cost of insurance for your property and what the policy will cover on the rental property. Estimate the cost of the premium in monthly increments.
6) Consider what the rental price will cover for your tenants. Some landlords opt to pay for some utilities such as water, heat and sewage while others choose to pay for nothing extra. There're pluses and minuses to each decision, especially if you choose to pay some of the bills. Be prepared for tenants who might take advantage of the “free” services and utilities that you offer and consider these factors when calculating your potential costs.
7) Account for the cost of advertising and marketing the property to potential renters. If you plan on requiring credit checks or other requirements for prospective tenants, make sure you know what costs will be incurred.
Finances: You're a seasoned investor and are rolling over profits into a new venture or you have a nest egg or access to some funds for investing. Maybe you're the sole investor or have other parties involved. Whatever the case might be make sure you have a solid figure to work with and a source for more if necessary.
Time: What are you looking for, short term (less than 5 years) or long term (10 and more years)? This is an important component because it dictates what type of property you will select.
Type of Rental Property: This is really a personal decision and there is a plethora to choose from; single family dwellings, duplex, multi unit, commercial or land. Put some thought into it and do your homework as this is one of the key elements of your investment base and will define for your investment profile for future endeavors.
Formula: Finances + Time = Type of Rental Property
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