You’ve made a windfall and you’re looking to buy an investment property you can turn into a steady source of cash flow in the form of rental income. If you’re ready to become a property owner-cum-landlord, here are three things to remember before you buy your first rental home.
Stick with a budget
Whether you’re looking to invest your personal funds or taking out a property loan, have a budget and stick with it. If this is the first time you’re buying an income property, seek guidance from a financial advisor on the expected ROI, taking into account buying costs, cost of repairs and maintenance and the expected rental income.
Success in real estate investment takes time and patience, so don’t rush into a buying spree. Instead, learn more about the trade and take informed decisions.
Research rentals in the neighborhood
You may have decided upon a location simply because someone recommended it or a real estate agent is pushing you to buy there. Tread with caution—your entire business plan could go for a toss if you fall for inflated rental figures.
Do your own research, find out the going rentals in the area, and factor in the associated costs of acquiring a property, advertising it to potential tenants, maintaining it until a good tenant comes along, and government taxes and agent fees, if any. Then decide if the place is worth buying.
Ideally, you should be looking for a high rental factor (monthly rental/purchase price) x 100)). So if the purchase price is $400,000 and the expected rental is $8,000, the rental factor is 2%. Note that this does not take into account the other costs discussed above.
Consider when you will break even for each income property you buy
Just because you’re currently making hay as a real estate investor does not mean that you should disregard the crucial aspect of financial planning, which lies at the heart of any successful property investment business.
Most ready-to-rent investment homes will start generating income within a couple of months, but some won’t. Once your rental income has paid for your initial expenses, you’ve reached a break-even point. This is when you can begin considering the rent as additional income and start thinking about buying your next rental home.
Buy through a reputed local real estate company
Contact a seasoned and well-established local house buying company, such as the Corpus Christi-based Coastal House Savers, and let them know you’re looking to invest in a home or commercial property that will fetch you good rent and will also see considerable appreciation in the coming years.
By partnering with a local real estate business, you’ll benefit from their resources and expertise in scouting your preferred location for a good deal. House buying companies often acquire fixer-uppers, foreclosed homes and distressed property for a low price, refurbish it and sell it for profit. If you have the funds, you can collaborate with such a business as an investment-partner.