If you have been thinking about purchasing a rental property, there are many things that you should consider before taking the plunge. You may be eager to find your next investment opportunity, but it’s important to take the time to research and plan so that you don’t make any mistakes.
In this post, we will go over 7 key points that every investor should know before buying their first rental property!
What are your goals?
The first question that you should ask yourself is what your goals are for purchasing a rental property.
Are you looking to generate income and build wealth over time? Or do you want the property to act as a tax write-off?
Knowing your goals will help you determine which type of property is right for you, as well as how much effort you should put into finding the right investment.
What is your budget?
Next, you’ll want to determine your budget. How much can you afford to spend on this investment?
It’s important to remember that there are many costs associated with owning and managing a rental property, including mortgage payments, repairs and maintenance, insurance, and taxes.
When deciding on an amount to spend, be sure to factor in all of these costs and leave yourself a cushion for unexpected expenses.
You will also want to make sure that your budget is realistic; it may be tempting to overspend in order to purchase the most expensive property or the best area, but in reality, you should stick with what you can afford.
What is your target return?
Another important question to ask yourself is what your target return on investment (ROI) is. What do you hope to earn from this property each year?
This will help you determine the type of property that is best for you, and how much money you need to be making each month in order to cover your expenses and still turn a profit.
What is the rental market like in your area?
Before purchasing a rental property, it is important to do your research and see what the rental market is like in your area.
Are properties being rented out quickly? Are rents increasing or decreasing? What are the average vacancy rates?
Knowing this information will help you determine whether now is a good time to buy a property, as well as how much you can expect to charge for rent.
What kind of property are you looking for?
Once you know your goals, budget, target return on investment, and have a general understanding of the rental market in your area, it’s time to start shopping around!
The first thing that you will want to determine is the type of property that interests you most; there are many different types out there.
Some popular options include single-family homes, multi-unit properties, and commercial buildings.
Each type of property has its own advantages and disadvantages, so be sure to do your research before making a decision.
Also, do some research on the area you want to invest in; if it is a great place for families and retirees, then investing in single-family homes might not be effective.
However, if you’re looking at an up-and-coming neighborhood with lots of younger renters moving in each year, multi-unit properties would likely be more lucrative.
Is the property in a desirable area?
It is always important to purchase rental properties that are located in areas where there will be demand.
While you may think that it’s fine if your property doesn’t have amenities like public transportation or restaurants and shops, this could potentially hurt your profitability down the road.
You should also consider the school district when researching a rental property because this will impact whether or not you can attract tenants that have families.
If public schools are lacking in an area, it is unlikely that many parents would want their children attending them, which could hurt your occupancy rates and profitability.
And lastly…
What kind of tenants will you be targeting?
You should always have a target tenant in mind when searching for a rental property. You need to know who is going to rent your unit before buying it, otherwise, you could end up losing money on a property that doesn’t fit your target audience.
For example, if you’re looking for a property to rent out to students attending the local university, it would be wise to avoid areas that are known for their expensive housing.
Similarly, if your target tenant is retirees, then properties in suburban neighborhoods would be a better option than those located in urban areas.
All in all…
If you want to invest in rental properties but don’t know where or how to start, just remember to do your research!
There is so much information available online (including on this very blog), and it is important to arm yourself with as much knowledge as possible before making any big decisions.
Keep these seven things in mind when purchasing your next rental property, and you’ll be well on your way to a successful investment!