People who invest in rental properties aim to earn passive income while keeping their main jobs. Other people use part of their retirement money to buy a property and manage it to keep themselves busy during retirement.
Many think that investing in rental properties is as simple as buying a house and getting someone to rent it. But the process is not as easy as this since investors have to consider several factors before making rental properties a steady source of income.
Here are the things that people should consider if they think about investing in rental property.
Look at the Market in the Area
When looking for a property to buy, investors should consider the market and what type of property they prefer. Investors should not focus on the price since lower-priced properties might not be appealing to potential tenants. They should look at the properties that do not stay long in the market. These are the properties that they should invest in since the tenants prefer them over the others.
If the market is made up of millennials, they can look for single-family homes since these are popular in this generation. Promoting the property for this segment in the market is also a good idea since millennials tend to rent for a longer period.
Investors should also consider the overall condition of the property. If they’re buying a house that requires a lot of repairs, they might end up spending a lot to have the property ready for rent. They should also look at the properties around the house. If the properties in the neighborhood are in a state of disrepair, they might find it hard to look for potential tenants since people might not want to stay in these areas.
Check the Figures
Investors should also check the figures and see if they can get their return on investment (ROI) within a suitable period. If they plan to get a loan for the property, they should make sure the rent can cover the mortgage and other expenses related to owning a rental property. They need to consider insurance, taxes, homeowners’ association fees, and maintenance expenses.
Investors should also consider the fee for the letting agents they will hire to promote the property. The fee will likely depend on the value of the property and its appeal in the market. It’s also possible that these agents will have a flat fee to help the investor promote the property in the market.
Taking these figures into account will give investors an idea of whether the rental property they are eyeing can give them the income they want every month. If the rental income isn’t enough to cover all the expenses, the investor should look for a different property.
Manage the Documents
Investors should also make sure to keep all the documents related to the property. Even if they hire a property management company, they should still have a copy of everything in case something happens in the property.
They should keep copies of the records of payments, expenses, and the lease agreement. They should also make sure to keep a copy of the insurance policy in a safe place. Aside from keeping the original documents, they can also create a digital copy of these documents to ensure they have a backup.
Keeping these documents in a safe place is essential in case a disaster happens. Investors need to check their insurance policy on the coverage in case a hurricane damages the property.
Work with a Property Management Company
Connecting with a potential tenant is essential for the investor to make money out of the rental property. Due to this, he should advertise the property in suitable places. While he can post an ad on Facebook or Craigslist, he might not reach the market that he’s looking for. He might end up spending more money advertising the rental property without getting any quality leads.
In this situation, the investor can consider working with a property management company. These companies have access to real estate websites that connect with the market of the investor. They can also advertise the property on their websites. Potential tenants trust the postings on these sites rather than ads on social media platforms.
So, the best way for the investor to advertise the property is to work with a property management company. These companies can also handle tenant screening and selection, property maintenance, repairs, and rent collection for the investor.
Investing in a rental property requires a lot of work for the investor. But once he gets everything organized, he can look forward to a steady source of passive income in the future.