Keep Your Rental Property Investment Stress Free
Deciding to invest in a Rental Property can be an exciting time for anyone, but like any new adventure, this can also be very daunting and stressful. A major investment takes a lot of thought and research and shouldn’t be considered lightly. To help with this process we have put together a list of tips to avoid suffering an anxiety attack!
1: Research First; Then Advice
With any major decision, it’s a good idea to do some research before just jumping into a huge responsibility. It’s a good idea to get tips and advice from those who have taken the rental property plunge already. It will help for you to get an insider’s perspective and consider things that you wouldn’t have even known to ask or think about in the first place.
Of course, before you start asking a million and one questions, it’s probably a good idea to start your own research first. You can attend seminars, classes and read some articles or books on the subject. You want to fully understand what you are getting yourself into and find out what you need to do to prepare yourself for owning a rental property. Take a look at the rental market, find out about the best locations in your area and property values. By doing your due diligence will help aid in the success of your new venture.
The best strategy for owning your first rental property is by investing in something in your current area of residence. You will already know about future development plans for your area, the selling points and how to market the location to potential renters. Understanding the economy in your area will help to further relate to the potential renter and what brings them to the area, what areas are up and coming and stand to generate the best business.
2: Understand the Market
Understand the housing market. You want to know what houses or properties are selling for to ensure that you find a good deal. If you are prepared to do your own marketing and find your own properties you can save a great deal of money.
However, a real estate agent can help you to determine what properties would be right for you and help you to get the best deals. Remember that a lot of people may have access to the same information and competition can drive up prices; having someone in your corner that understands the housing market will come in handy when it comes to making offers. A real estate agent can also help to find houses that are in foreclosure, which are excellent properties for a first-time investor.
A real estate wholesaler is another viable option for you. Because they too are investors and are experts at finding great deals, they will be able to locate properties suitable for flipping into a rental property at a below-market price. Just be sure to check their references and trust that they will be able to handle your new investment with a professional demeanour.
3: Research the Rental Property Market in Your Area
Find out what had been recently sold in your area and for how much. What does rent typically run in that area, and for what type of property? Are there any rental incentives you should be aware of? Rental incentives are very popular if the area has heavy competition so considering a different neighbourhood may be a good idea if you don’t want the hassle of competing for renters.
Look at ads, drive around different neighbourhoods, talk to landlords and tenants. Understanding the rental income draw of the neighbourhood and any potential low occupancy levels will help you to get the financing needed to invest in a rental property.
4: Financing & Cash Flow
Before you can apply for your mortgage you will need to know all of the costs associated with the rental property up to and including repairs and other maintenance costs. Your mortgage will be your largest cash outlay and is the most important cost consideration. In most cases you will need to put a 20% down payment and a rental unit may have a slightly higher mortgage interest rate. Having a great credit history will help to determine your rates and whether or not you qualify for a mortgage in the first place.
Check with a mortgage broker before you begin your property hunt to find out how much you can be approved for. This will help to narrow down your search and keep you within your means.
Do the calculations and proper budgeting for yourself to know your break-even point. You want to ensure that you are seeing a return on your investment and exactly how much profit you should expect to see every month. Make sure that your rental property is going to be a worthwhile and beneficial investment.
5: Locking in Equity
Know your price. Find out the retail market value and ensure that you get your property at a 10-20% discount so you can leave the closing table with equity. This will ensure future profit or at least a buffer should you have to sell before your estimated liquidation date.
If you go through a wholesaler make sure you see their valuation calculations and compare them with your own. Be clear about your below market value percentage, that way they will have to deliver on your expectations.
Remember, you’re in control. The deal only goes through until your say so. Set some limits and only strike a deal that works for you.