Investing in rental properties is often the best and safest way to grow your capital, but you need to make sure you do your research and have all your facts before you dive into the challenge of finding the right property to invest in.
Firstly, consider is how long you intend to own the property. If you plan on having the investment property for a long time, you will need to spend more money maintaining and repairing it.
However, this does not mean that long-term ownership is a bad thing, as there are also risks with owning an investment property for a short time. By owning for a longer period, the property is more likely to increase in value. If you are only going to have the investment for a short time, it could easily decrease in value without having the opportunity to regain that value before you sell. For beginner investors, or those that do not wish to invest too much money, long-term ownership may be the way to go.
You also need to make sure that your finances are in order before you can begin to consider the possibility of investing in real estate. You need to do your research and look at different mortgage interest rates from banks and mortgage lending companies, as higher interest rates will cost you and you may not end up making as much on your investment as you originally thought.
So before you make a purchase, obtain a credit report and make sure that it is accurate, then pay off any debts, and then start to apply for a mortgage.
You also want to make sure that you have enough money left over after the purchase to make any necessary repairs to the investment property. Improvements constantly need to be made and unexpected vacancies can sometimes occur. It’s a good idea to always have at least one month’s rent available to cover these costs.
You also want to make sure that you are paying the right price for the property. It’s important to remember that when buying for investment purposes the chances of making back what you put into the property are slim if you pay too much to begin with.
It’s important to make sure that the rental income will cover any costs that you will need to pay. This includes the mortgage for the property, property taxes, insurance, cost of repairs, and possibly utilities. When determining what the profit if any, will be made, it is important to consider that even if you are only going to break even, you will still profit in the end, due to the value of the property increasing.
For relevant checklists check out this post.