- Location is important
- Carefully consider the type of rental unit
- Examine the pricing structure
- Plan ahead when determining a leasing structure
- Take time for tenant selection
Rental Property Location:
The location you choose will make a big impact on renting it out. Certain locations command more revenue and certain locations will attract specific types of renters. Are you looking to rent it out to students, to families, to retirees, as corporate apartments? There’s a lot to consider when you purchase an investment property. You’ll want the sort of property that makes for ideal rental scenario and that will allow you to make an income because you can command more of a rental fee than you’ll be paying out in the form of a mortgage payment. It’s tempting for new investors to buy something really inexpensive. Keep in mind that this could translate to a lot of problems down the road with maintenance, repairs, and with attracting the sort of tenant you’re looking for.
What Sort of Rental Unit?
The type of rental unit is important.. Are you renting out a single or multi-family home? Will it be commercial property? Does the property have the potential for more than one rental? Are you going to have to make any upgrades to it before you rent it out? Will you have to have inspections done to be able to rent it out legally?
How much will you rent it for? You’ll need to determine the going rate in that area based on the type of rental property and compare that against your mortgage, taxes, and other upkeep costs to make sure it will be profitable for you. Number crunching is important.
Will you be signing a lease with the renter? What are your long term plans in terms of ownership? Carefully weigh this when you sign a lease with someone so that it fits with your long term plans and make sure you carefully outline the lease.
Choosing the Right Tenant
Choosing the right tenant(s) is vital. Naturally, you’re in a hurry to start generating income but you want to be sure the property will be kept in good condition, that you’ll receive payments on time, and that owning the property won’t add stress and headaches to your life. Don’t rush it. Some new owners of investment properties that will be rented out are so panicked about getting the unit rented that it teaches them a costly lesson about renting to the right people. Do due diligence to find the right renter rather than being consumed with the need to get it rented immediately. Many will work with property management firms and /or real estate agents to help them.
When looking at rental properties, here are some things to remember about buying the right property:
- Look for soundness in the building structure and major areas, such as heating and plumbing
- Look at the area to assess the potential for the right tenants for your needs
- Talk to a real estate professional about the outlook for the market in that area and for specific types of properties
- Make sure you have a rainy day/emergency fund for the building to make sure you can cover a few mortgage payments in case there’s a default in renter payments or extended period of vacancy and have enough money aside in case the worse happens (new roof / new furnace, etc)
The right property could yield great returns on your investment. Get informed before delving into this world to maximise ROI and minimise headaches. Make sure you buy the right property, rent it out to the right people, and make sure you’ve made a sound real estate investment decision.
photo: Chris Gordo