There’s no easy answer when it comes to investing in a rental.
A rental is an investment that can bring in some serious cash flow. But most landlords struggle to know when the right time is to invest and what things to consider.
That’s why we’ve outlined some important facts below when it comes to buying a rental property.
1. Funding
If you plan to finance the property with a mortgage, you’ll have to understand the rules. Mortgage lending guidelines typically require applicants to have at least two years of steady employment within the same occupation. So, if you switched jobs, you could be out of luck.
Plus, you should also note that you could be on the hook for a down payment of 20% to 30% (or more) if you don’t plan on occupying the property. That’s because lenders usually require a downpayment on properties that are bought for investment reasons.
2. Additional Costs
When purchasing a rental, you should figure out all of the costs associated with it before signing.
This means you’ll need to consider the expenses beyond just the purchase price. Additional costs associated with a home also include things like mortgages, interest, taxes, maintenance, vacancies, etc. So, be realistic with your calculations when it comes to an estimate.
It’s also good to note that sometimes low costing properties might actually end up being more money overall. Cheap properties are often riddled with issues that require upgrades and fixes before being rentable. These costs can all eat into your return and result in a poor investment decision.
After all, an abundance of fees means that things around the property (maintenance requests, cleanliness, and communication with tenants) will suffer.
3. Rental Rates
Prior to purchasing, you will need to consider how much you will be earning on the rental itself. Of course, these costs will be subjective and determined based on the property’s location, size, and demand. But you will need to work out a budget to see if the purchase will be a good decision.
If you are unsure of how much a unit will earn, consider speaking with a professional like us at PMI Midwest. We believe that the best way to determine what your revenue will be is to base it on rental history and market statistics. We use these tools to give clarity on how much a unit in the area will go for. In turn, working with you to make a more knowledgeable and informed purchase decision.
4. Location
Buying a cheap home won’t necessarily help you earn a return. After all, renters want to live in desirable locations and will be willing to pay a premium for it. This means that when thinking about investing in real estate, the cheapest home might not be the best.
Instead, it’s a good idea to do some market research into the neighborhood and neighboring properties. Look to see what is selling, and what type of homes are renting the quickest. This can help determine what type of property you should invest in that will best reflect the demographic. Otherwise, simply purchasing a cheap home could result in longer vacancies, a lower rental rate, and lost funds.
Just know that ultimately there is no right answer when it comes to investing. Things like where the property is located, how big it is, what the rental market is like, and how much the unit costs all matter.
That’s why we suggest partnering with a respected property management company. A management company, like us at PMI Midwest will be able to help you through it all. So, give us a call today at 317-546-3482 or email info@midwestpmi.com.
