In the ever-changing housing market, building wealth through real estate is still a fundamental investment strategy. Owning real estate as part of your portfolio can benefit you with short-term gains as well as long-term appreciation. The key is to invest wisely. One of the smartest real estate investments is income-producing rental property.
RIGHT LOCATION First and foremost, find out where renters want to live. Purchasing property near freeways, shopping, parks and in good school districts will help insure that your property will be desirable to a large base of potential tenants. You may also consider the proximity of the rental property to your own personal residence. One that is within a short distance of your home makes managing the property and dealing with tenants much easier.
RIGHT PROPERTY There are many aspects to consider before you purchase a rental property. For instance, a three- or four-bedroom home may be easier to rent than a two-bedroom. An updated kitchen and a fresh, clean interior will make your home stand out. Many tenants may desire a pool in the backyard, but you will want to consider the liability factor. Look for a home that will be relatively easy to maintain. Newer homes typically have less issues and homes with a simple construction will make materials easier to replace and repair.
RIGHT PRICE While that may seem obvious, there are many factors at play to help determine a good value. The most effective way to build instant net worth and equity is to buy a property at a “wholesale” price. A real estate professional can help you find pre-foreclosure or bank-owned properties and just plain great values in the area you’re interested in. They are well-versed on what constitutes a great value and can help you snap up the best deals before someone else does.
DO THE MATH First, figure your monthly expenses on the property – mortgage, insurance, taxes, utilities, projected repairs, maintenance, marketing, etc. Next, determine how much you’ll be earning in rent. Research comparable rental rates in the area so you’ll know the income potential. Don’t forget to add in a month or two of possible vacancies. If your income is higher than your outlay, that is your cash flow. A strong cash flow is ideal, but many investors are simply looking for long-term asset growth by choosing a property that will build excellent equity over time.
LIMIT YOUR LIABILITIES Before purchasing any property, a home inspection is a wise idea. However, it’s even more important when buying rental property. Not only will costly repairs take a bite out of your profits, but as a landlord, you have an increased risk of lawsuits. After purchasing your property, protect yourself and your asset by choosing your tenants carefully. Draft an air-tight lease and do thorough background, criminal and credit checks.
Consult your real estate professional before beginning the process, as well as your CPA as they can both advise and guide you in making the best decisions for your situation and goals.
Source: DLP Marketing