3 Smart Tips For Investing In Rental Properties
Are you looking to invest in real estate? In today's real estate market, it's not as easy to buy a house and flip it for a quick profit as it used to be. However, a rental property is a fairly safe investment, and if you play your cards right it will bring you a steady profit all year long. Take a look at some tips that will help you make a smart real estate investment.
Obey The First Rule of Real Estate
Everyone knows what the first rule of real estate is: location, location, location. Paying attention to this rule will help you choose a property that will be easily rented out. Look for properties in locations that have something special to recommend them. You can look for a place that has a gorgeous view of the landscape, easy access to a beach, or close proximity to an excellent school system – anything that will drum up interest in the property.
You should also consider the location in relation to you. You know your own neighborhood best, so you'll easily be able to explain the best parts of it to potential renters. Besides, you don't want to live so far away from your new property that you can't easily check in on it. The closer the rental property is to you, the better you'll be able to keep an eye on it.
Do The Math
You have to run the numbers before making a decision on a house. You need to know whether or not you're getting a good price and whether you'll be able to make a decent profit on the property. There are some simple calculations that can help you figure that out.
Start by figuring out the monthly income that the property will draw – that is, the amount of money the current tenants are paying for rent. If there are no current tenants, find out the average rental price for the area and use that number. Then calculate your expenses, including property taxes, insurance, mortgage payments, and homeowner's association fees. Don't forget to include an estimate for vacancy costs and regular maintenance and repairs. Subtract the expenses from the rent and you'll come up with your net income. If the net income is positive, take that number and divide it by the purchase price of the house. That will be your cap rate – the number that lets you know if you're getting a good deal on the house. You want that number to be at least 6% to 8%, and preferably higher.
Don't Spend All of Your Cash
If you're already a homeowner, you know that unexpected expenses are just a part of homeownership. Even if you figure an amount of money for repairs into your monthly budget, it might not be enough in the event of catastrophic damage.
Therefore, if you're using your nest egg to invest in real estate, it's a smart move to keep a bit of it set aside in order to have some reserves, just in case.
Investing in rental property isn't a get-rich-quick scheme. It takes time, planning, and work. However, if you approach it properly, buying and renting out property can result in a nice steady cash flow. Speak to professionals who can give you more information about investment properties for sale.