What To Consider When Buying An Investment Property
For any investor, purchasing your first rental property is a big step. A rental property is a great way to generate extra income. Before you purchase you should at least know the basics. There are many variables to consider when purchasing your investment property. With these tips, you'll have the information you would need to have a smooth process.
Is an investment property right for you?
Here are a few things to consider :
A good investment property is a house that requires low maintenance, limited vacancies, and a good rent-to-value ratio.
A good location is key.
When looking for a property most importantly look for schools, major roads, and public transportation.
Also, research rents in the area you are interested in, both in as-is condition and with improvements or repairs.
Purchase an affordable investment such as a single apartment, condo or duplex. Avoid properties needing significant repairs because they can cause you to overextend yourself.
Look for properties that need modest repairs that are priced at below-market rates. Save yourself the headache and purchase a house that is already in a workable condition.
- How do I determine the potential ROI for my rental property?
Consider the return on investment (ROI).
First, find the property's net annual income, which is the rent that's left over from taxes, expected repairs (1% of the property value), insurance, vacancies, utilities that aren't covered by the tenant, and if applicable HOA fees.
The ROI is found by taking the annual income and dividing it by the amount of the property. For example, if the net income is 8,000 and your purchase price is 100,000, your ROI is 8.0%.
Turnover and evictions are realities of leasing any property.
Assume at least a month's rent loss annually.
Take some time to think seriously about your ability to manage your property. It's time-consuming and an intense line of work.
Consider using a property management company that will take care of the tenants' needs, collect the rent, and handle the process of an eviction.
- Choose your tenants wisely
Let's face it, dealing with tenants can be stressful. It is best to thoroughly screen tenant applicants and prepare to assert yourself in difficult tenant situations.
To keep vacancies and eviction losses to a minimum, your tenant income should be at least three times the rent and verified by having their employer sign a form.
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