Are you thinking of getting a rental property and making some money on the side? Well, congrats! You’ve made a great decision because rental income typically increases with time. In the U.S alone, the average monthly rent rose from $1,368 in 2014 to $1,734 in 2020.
However, you need to get the right rental property to ensure your investment and income stay secure. This means considering five crucial factors before signing that sale deed, have a look at them below:
The Location & Value Appreciation History
When you’ve set your eyes on a property, take a few steps back and look around the neighborhood. It’s best if your house or building sits close to amenities like schools, hospitals, malls, restaurants, local businesses, parks, etc.
Furthermore, look at the crime rate in the vicinity, and also how aesthetic are the surroundings? People want a convenient and safe lifestyle, so having common-use facilities nearby and a secure living environment will attract better-paying tenants.
Get an Idea of Property’s Value Trend
Check for the value appreciation history of the property to ensure it’ll go up in the future. Many online platforms like Trulia may have the building or house’s previous sales history. If you’ve got a realtor, they can help you with this as well.
Estimate Property Expenses
Your rental property is not going to be a one-and-done purchase. There will be expenses for owning and managing it that the monthly rental income should cover, including:
- Property taxes
- Homeowners Association fees
- Homeowner’s insurance
- Property management expenses
- General maintenance costs (landscaping, washing, etc.)
Besides these fixed expenses, there can also be some variable expenses like fixing burst pipes, unclogging drains, fixing the roof after a storm, replacing the water heater, etc. So make sure the rental income is enough to sock away some greenbacks for such situations.
Calculate Expected Monthly Rent
Here’s what you need to do; take the total purchase value, add the taxes, registration fees and other expenses including repairs and renovations, and that should be the total amount you’ll pay for the property.
Now take 1% of it, and that should be the expected monthly rent of your property. For instance, if you buy one for $250,000, the rent should be around $2500/month.
This estimate will also help you assess if it will be enough to cover mortgage payments and property taxes and other expenses. Don’t forget to leave some room for you to make money too!
Can You Actively Manage the Property By Yourself?
This is a big one as you need to be mentally and physically prepared to deal with the troubles of managing a rental property. You’ll be getting calls from your tenants, in addition to collecting rent every month can be a hassle as well. However, if you don’t want to dedicate your time and energy to these issues and just earn a passive rental income, you need a property manager.
A professional property management company like BC Team can help you stay fully hands-off. They’ll better manage the house/building and deal with day-to-day problems and complaints of tenants, while also collecting the rent on your behalf.
Once you’ve considered all factors we’ve laid out above, you’ll be better equipped to make a well-informed decision. Just like every legit business, real estate investing is also not a get-rich-quick scheme.
We suggest you plan for the long term, factor in the expenses, time cost, and personal effort before pulling the trigger – that’s how you can build a self-sustaining rental business.