No matter how the real estate market is performing, the right investment in the right location may provide the rental returns you require in the short-term, while earning significant capital gains through rising house prices in the long-term. For those that wish to become landlords, here are five tips for selecting a profitable property.
Choosing an Agent
Get in touch with a knowledgable agent who specializes in the rental market. The ideal agent has worked with investors before and can tell you what tenants are looking for. The agent can also help validate the numbers and determine the potential investment. As the saying goes, a person is only as good as the team behind them, so choose an agent you trust to maximize your chances of success.
Think Like an Investor
There’s no point buying a rental property if the rent it generates is less than the return you would receive from an alternative investment. One rule of thumb is to calculate the potential cash flow and cash on cash return for the property. Consider, for example, a potential investment property that costs $150,000 with a down payment of $30,000. The property earns $10,000 per year in rental income. After deducting your mortgage payment and other expenses, you should expect to clear $3,000 a year in net rental income. This investment scenario generates cash on cash return of 10%: $3,000 against the $30,000 cash you invested – this represents an excellent return. Changing the variables, for example, increasing the mortgage or lowering the rent gives a different result. So make sure you have a sound financial strategy before you begin.
The Location Must Please Your Audience
The perfect location for a rental may not be where you would like to live. Do your homework and make sure that you understand the buoyancy of the rental market in various neighborhoods. Prepare a profile of who is renting in each area. Young professionals, for example, need good commuter transportation access, shops and entertainment. Families need parks and highly ranked schools. Concentrate your efforts on finding a property that also fits the target group and will generate the return you expect.
Related: Investing in the Right Neighbourhood
Look Through the Eyes of a Tenant
Renting is a visual experience and first impressions count. Most leases and rental agreements stop tenants from changing or altering properties without your consent, so you’ll need to give them a move-in ready product. Modern fixtures and fittings, dependable heating and plumbing systems and freshly painted, clean interiors will attract tenants. Pay attention to gardens, driveways and garages for curb appeal. If you’re furnishing the rental, choose renters that match your audience. Students, for example, need desks and workspaces while urban professionals will enjoy sleek lines and modern furniture
It’s Not an Easy Job
The landlord—tenant relationship is highly regulated, so you’ll need to familiarize yourself with local and state laws. If you can’t handle the volume of work, consider hiring a property management company to do the day-to-day operations for you.
What’s holding you back from making your first investment? What’s holding you back? Leave a comment, and let’s chat!
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