April 05, 2017
IS INVESTING IN RENTAL PROPERTY RIGHT FOR YOU?
When you invest for the right reasons at the right time, purchasing rental real estate has every possibility of showing excellent ROI (Return On Investment). Your end result will come about based on the decisions you make at the beginning of the process.
Unlike most other investments such as stocks or bonds, your real estate investments have two distinct income potentials to help you grow your financial resources:
- immediate cash return that comes from secure, reliable tenants who pay monthly rental fees
- general appreciation of the property over time known as equity
Always protect your investment and enhance your probability of success by working with a local market specialist who possesses detailed knowledge of the area and experience with the process.
For the sake of this post we will presuppose a residential property investment. Before you decide on the type of property to best achieve the goals you’ve set for your investment outcome:
ASK YOURSELF THESE IMPORTANT QUESTIONS
Will you invest in a single family home or a duplex? Would you consider an apartment complex? The answer to that question may depend on if you plan to live on the property?
Is there a market for your rental investment? Is the area zoned for a multi-family structure? Zoning laws change from time to time. Don’t assume that even an existing structure will meet the current laws.
Will there be enough cash flow to handle the costs involved? Who will handle the rental operations; will you do that yourself or hire out to a management company? What about funds for emergency repairs and routine maintenance?
Each type of property presents specific benefits and drawbacks. The greatest benefits are realized when you’ve got these answers figured into your long term planning. Knowing the benefits each property type offers and understanding how to overcome any drawbacks you may encounter sets up a good foundation for your success.
SNAPPING THE BEST FINANCIAL PICTURE
Another very important question that begs answered is how quickly will you need to see cash flow? While we’d all like to see an immediate return, the reality is, that often isn’t the case. Even when you catch a bargain in the initial purchase, there may be renovations necessary.
Consider items you’ll need to fund until you do begin to realize a positive cash flow. You should have an established emergency fund for those unexpected repairs that tend to spring up and you’ll want to set aside funds for ongoing expenses of maintenance fees, property taxes, property insurance. If you have a mortgage you will need a fund to cover that expense for those inevitable times when the property is not occupied by paying tenants.
Although it isn’t necessary that you have sterling credit or even that you have great amounts of excess cash, you don’t want to throw caution to the wind when investing in a rental property. If you won’t be buying a property for cash, start by talking to a lender. As with any real estate purchase, before you begin looking at property you want to be prepared to make an offer the seller will find as irresistible as possible. That position is strengthened by a lender letter of pre-approval.
For a healthy investment experience, complete your due diligence before leaping into any situation in order to minimize your risk. Work with your local marketing specialist to uncover any possible zoning concerns or applicable real estate laws that affect your decision. In this way you increase the likelihood of making a profitable purchase that shows excellent ROI in the long term.