With home ownership more tenuous now than in previous years, more and more Americans are living in rental properties, and that means investing in a rental property can be a lucrative venture.
As with any real estate investment , a rental investment requires careful research, but the rewards can pay off.
There are many considerations before taking the plunge.
If you don’t have prior experience investing in a rental property, you’ll need to start by asking yourself a few key questions.
First, consider your financial situation.
- What kind of down payment can you make and how much can you afford as a monthly mortgage payment?
- How much will you need to earn in rental income in order to keep up those monthly payments?
- Do you have enough of a cushion to handle vacancies that result in periods of no income?
It’s a good idea to get pre-approved for an investment property loan, and then secure the services of a real estate agent to help you find the type of property you seek.
You’ll want to invest in an area where renters will want to live. Consider proximity to transportation, shopping, and schools, as well as the area crime rate - the same sorts of considerations you would make if you were buying a home for yourself.
Next, you need to decide what kind of property interests you.
Are you in the market for a single- or multi-family dwelling? Condos? An apartment complex? A high-turnover vacation (weekly or short-term ) rental?
Once you decide on the type of property, you’ll also want to think about whether you’re prepared to invest money (and time) in a fixer-upper that may need repairs or even renovations.
If not buy a property that is ready to go with few necessary up-front fixes.
You’ll also need to think about how much rent is reasonable to charge based on the area and the amenities the property offers - laundry facilities, bedrooms, condition (new or in-need-updates), etc.
Are you able to manage the building or should you hire a property manager for a fee?
If the property is distant, a property manager is paramount. Secure the services of a property management company or individual who lives in the area and can monitor the property, help with checking in, handled cleaning and maintenance, and provide other necessary services and upkeep.
It’s essential that you have a qualified inspection of any investment property to check for any hidden problems in the plumbing, electrical system, or structural components that could come back to haunt not only you but your tenants.
When you calculate your monthly expenses you’ll have to figure in maintenance costs as well as vacancies that don’t produce rental income, and other unforeseen difficulties with tenants such as late or unpaid rent.
Include the cost to attract renters.
How will you attract renters to the property and keep them in order to cut down on long-tern vacancies? Understanding the rental market in your area will be critical to determining your potential vacancy rate and marketing effort. Implement a thorough screening process to weed out any prospective tenants who aren’t likely to honor the terms of the rental agreement.
Once you’re mulled over all these considerations, it’s time to find the right property and make an offer. Your real estate agent can help you with this process.
It’s always best to engage an agent who has rental properties they currently own in the area where you plan to invest.
The agent should be extremely knowledgeable about the rental market in the area.
If you haven’t invested in a rental property before, it might be best to get your feet wet by starting small. If you’re successful and start to make some income off that property, you can always broaden your investments to include larger properties.
Do your homework and learn the ins and outs of maintaining a rental property and you’ll discover that renting can be a lucrative business.
|Jim Lowenstern is broker owner of Castles Unlimited in Newton, MA, has three decades of experience in luxury real estate. He also is a local radio talk show host and is a philanthropist with NewEnglandProsperity.org , a website dedicated to giving back to charity during real estate transactions.|