Should I invest in Rental Property?

With all the talk going around regarding property sale and purchase, flips and renovations, it makes sense that people would explore the rental aspect of real estate as well which is technically a more sound form of real estate investment compared to fix & flip property investment. Rental properties usually mature into a good payout over a longer period of time which is why people usually go for the quick buck. The other aspect about rental property is you  actively manage the property itself along with tenancy.

Rental is a really good way to earn long term income from your real estate, but there are other factors that you should consider when putting a property up for rental, and that has to do with both location as well as logistics.

The kind of property you want to own as well as how you want to set up the terms for rental, generally the larger the property (able to house more Tenants) the more time it will take for you to set up and will take more of your effort to manage.

Rentals are a good way to build a long term cash flow as maintenance expenses relating to the property are generally covered up by the rental income. The same goes with the property mortgage, insurance, and any recurring costs of property ownership.

It does generally take longer to set up a rental property and build it to full occupancy, but if you play your cards right and make the right decisions regarding location, as well as get smart with marketing, you can expect full tenancy in a short period of time.

People generally don’t go into rentals, or invest in rentals because it’s not quick money, but it’s recurring income if you do it right, which makes more sense if you want to secure long term income. For a person in the real estate business, it’s good to have both kinds of inventories in your portfolio.

There are generally few things to look for if you plan to get into investing in real estate for rentals

Where you Plan to Buy

The Location is the most critical element of your rental and can actually affect if you have a full tenancy or not. Homes closer to areas with heavy traffic tend to have a better response and get booked faster.

Calculate your Variables

If you are dealing with a distressed property and rehabbing it for rental, do not be lazy in crunching your numbers. Calculate all your costs,  your rate of return, and the average rental for each apartment in the property. Set aside a small residual budget for the property to cover maintenance which becomes part of investing in the property for things that can’t be included as part of the tenancy agreement such as roof or major system replacement .

High Demand Areas Fetch better Rents

Homes in high demand areas, or areas with high real estate value fetch in higher rents. It’s common for people who can’t afford to buy homes for themselves to go out and rent just to get in the right neighborhood with the right schools.

Avoid High Maintenance Buildings

No matter how attractive the deal may look, and no matter how great the location, if your inspection reveals that a potential real estate is over 20 years old, calculate the costs of replacing major items such as the roof, heatingsystems, etc. If you feel confident the rent would be able to cover the long term expenses, only then think about signing on the dotted line. Bear in mind that the older the building, the more it’s gonna cost in the long run, because the wear and tear due to age is going to demand more of your budget over time.