Many people buy rental properties thinking that it will get them some serious income pretty quickly. But this is no get-rich-quick scheme. In fact, purchasing a rental property takes a lot of know-how, resources and patience. It can also be a pretty risky investment to make. Your return on the property could be nowhere near what you have put into it, leaving you on the hook for a lot of money that you didn’t expect to have to pay. Or you could end up simply without the kind of money that you were expecting to receive from your rental property.
Before you decide to make this investment toward your future, consider these four things.
Do I Have What it Takes?
Purchasing a rental property is no small investment. Just like with buying a home that you plan to live in for decades, the investment that you’re making will have lasting effects on your financial situation. Purchasing a rental property inherently comes with a set of risks that you must factor into your decision.
The most important thing is to be able to conduct the kind of research that’s necessary to make a sound investment in the market on a rental property. You’ll need time and enough dedication to conduct this research, with a focus on topics such as:
● The quality of the area school district
● Crime rates
● Accessibility to amenities like parks and grocery stores
● The presence of public transportation
● Any changes made in area property values over recent years
● The number of home owners versus home renters in the area
This is a lot of information to gather. Many rental property buyers will recruit the help of a real estate agent to get the data that they need.
Am I Prepared?
There is a lot of money that can be potentially poured into the process of acquiring a rental property, as well as the process of actually renting that property out to somebody else. Depending on the area in which the property is located, a 20% down payment can be a pretty steep amount.
In addition to the down payment, there are other items that you may have to pay for, including:
● Repairs to the building
● Carrying costs if the building is not yet suitable to rent out (property tax, interest, utilities and so on)
● Closing costs
● Room in value of the property for a second mortgage if you need to come up with cash for emergency repairs
If you are buying a rental property in a fairly upscale area, you can likely expect that the amount you’ll be paying will be higher.
This brings us to another issue that you will have to be prepared for. Sometimes, it can takes months to get someone living in the rental property that you have bought. Until someone rents out the property from you, you will be on the hook for all of its related costs.
Do I Need a Team to Help Me Through This Process?
When buying a rental property, assembling a real estate team is just good business. With the right experts on your side, you can make the best decisions to protect your finances and your future. A property management team can even connect your property to prospective renters, thus expediting the rental process so that you can get the money that your property is worth in rent.
Is There an Exit Strategy?
When investing in real estate, it is often advisable to have an exit strategy in your back pocket-just in case. Here are three commonly used exit strategies for those who have found themselves unwilling or unable to deal with the burdens of owning a rental property:
1. Selling the property to an aspiring homeowner
2. Selling the property to a property investor
3. Refinancing the property