Whether you are a seasoned investor, or a newbie just starting out; there are certain steps that need to be taken in order to achieve a successful investment. One popular option is by purchasing a rental property. Although there tends to be a lot of work in the front end, with time rental properties can soon become a nice passive income.
The act of owning property is a tough business, throw tenants into the mix and you are loaded with a potentially problematic situation. By following a buying process with the right property and target market in mind, you will eliminate a selection of risks immediately. Here we’ll take a look at a few simple tips for buying a profitable rental property with minimal risk and trouble.
Finding the Right Property
When looking at property for investment purposes, you must leave behind your personal preferences and buy based on demographics. Ask yourself what type of tenants are you looking for and there will soon be a general idea of property type and location. For example; we wouldn’t buy apartments if we wanted to attract a family. For investors that are new to the property scene, start with a target group; the most obvious is young, working class family.
The location of a property is a crucial factor in the market value of that particular piece of real estate. Noisy and industrial areas often have lower market values. As an example; if you are looking for an investment property Auckland then a house near the freeway may be harder to sell later and also may bring in less rent.
The next point to consider is if you wish to manage the rental yourself or employ a landlord. If you choose to do it yourself, ensure you buy close to your own home to avoid travel costs while checking on the property.
The next consideration should be neighborhood, what kind of location will suit your target demographic? What are some great selling points about this area and what makes it stand out from the rest? Remembering with the number of vacant rentals, there is a certain degree of selling involved when it comes to attracting tenants to a house.
No one wants to live in an area that is riddled with criminal activity. Investigate accurate crime statistics for various neighborhoods. Items to look for are vandalism rates, serious crimes, petty crimes and recent activity. You might also want to ask about the frequency of police presence in the perspective neighborhood.
No matter what target market you choose, renting a house that is in close proximity to work will always be a positive selling point. Locations with growing employment opportunities tend to attract more people - meaning more tenants for you.
The most simple and affordable way to gather extra information about a neighborhood is by utilizing the local newspaper. Take notice of any repetitive listings for the same area. High or regular rental listings can mean a decline in neighborhood quality or seasonal fluctuations. Seasonal vacancies are common in regions that attract students or field workers, be wary and consider the expense between tenants if you choose a location like this.
Study the average rental price, there is no point investing in a property that is going to fail to receive a decent rental price - it just isn’t worth the headache. If charging the average rent is not going to be enough to cover your loan repayments, taxes and other general expenses then you have to keep looking.
Once You Have Found a Great Property
Before signing on the dotted line, take the time to work out a financial forecast for the investment. Although the figures are based on approximates, as long as realistic numbers are used, a reasonably accurate outcome will be achieved. Calculate all expenses for the year, don’t forget tax and a maintenance fund. Then minus your estimated incoming rent; this will provide you with a figure that will either confirm a solid investment or send you running for the hills. Never skimp with your figures, it takes a lot to maintain a house, so expect a generous portion will be consumed by general repairs.
Once the forecast looks good and manageable at that level, you can then put an offer in on the property. If the sale is successful start making preparations for the new purchase!
Before the Tenants Move In
There is often work that needs to be completed before the property can be tenanted. You will be amazed at the difference a fresh coat of paint makes to tired old walls. Tenants look for clean, tidy and neutral homes. With this is mind complete the minor repairs within a budget; pull out high-maintenance gardens and opt for the easy to maintain varieties. Fresh curtains and a professional clean should do the trick too. Once these jobs are completed and you have registered the property for the appropriate taxes, it’s time to advertise for perspective tenants!
For those who wish to take on the roll of landlord themselves make sure there is awareness regarding your rights and responsibilities as a landlord. There is quite a bit of work involved with managing a property - especially when it comes to finding the right tenants. Written and verbal references are important, as are credit checks. Ensure all bonds and advanced payments are made before the tenants move in and be sure to inspect the property regularly once they are settled.
The Bottom Line
Finding the perfect rental property takes time and research, expect to spend a few months engaging in the market to get a feel for it first. If you have uncertainties and would like some help, you can hire real estate investing company. Always put your own financial security first and never over-encumber yourself with debt. Be wary of hidden costs and utilize professional help wherever possible. It may take trial and error to get into the swing of property investment, but as long as you are open to learning there is no reason you can’t achieve a great result.
Before you start looking for a property investment, call to the friendly gang at Propellor Properties for all the advice and support to make your investment a success.