9 Things to Know Before Investing In a Rental
Posted on Sunday March 07, 2021 at 08:44AM in General
9 Things to Know Before Investing In a Rental
There's a lot to like about purchasing your first rental property. You have a whole new horizon of financial opportunities ahead of you, and the idea of such a lucrative investment can be exciting. However, it would be best if you didn't jump headfirst into the world of rental investment without knowing what's ahead. There are a few things that any responsible rental owner should know before finalizing their purchase.
From rental property management software to local market values and tenant screening, there are countless things you need to consider before getting started with a rental property - and that's only listing a few examples. If you're getting ready to invest in a rental, you should know these nine things.
- Have you assessed your potential profit? There's not much point to investing in a rental property if you're unable to turn a decent profit from it. Before you finish up your purchase, you need to understand your property's value, compare it with the rent that you plan to charge, and determine whether you're able to make any money off it.
- Do you know your target location? There are plenty of factors determining a rental property's value, but perhaps nothing is as important as its location. Your demand (or lack thereof) will largely depend on where your property is located: is it near high-traffic city centers or tourism hotspots, or is it out of the way on a distant side street? Your area could make the difference between your property being in high demand with a constant stream of renters or sitting unused without a single tenant.
- Who is your audience? Like any other business, you should have a target demographic in mind before you invest in a rental property. You might need to tailor your investment depending on your ideal tenants. For example, if you're planning on marketing your rental as a vacation home, you'll need to ensure that it's close to popular attractions and filled with appealing furniture. Meanwhile, suppose you're targeting students at a college or university. In that case, you might not need to worry about your facilities' quality as much as you should about proximity to school and student hotspots.
- Do you expect the unexpected? Buying any piece of real estate comes with plenty of risks and surprises, and rentals are no exception. While you can't prepare for every possible eventuality, you should leave room in your monthly income to pay for unexpected expenses.
- Is your property ready for business? Rentals sometimes operate on a tight profit margin by necessity. If you want to maximize your monthly revenue while paying for any unexpected expenses, you should only invest in properties that are ready for tenants as soon as you get the keys. Extensive repairs can quickly stack up and drain your funds away from more important endeavors, so it's essential to opt for tenant-ready properties whenever possible so you won't have to wait to recoup your investment.
- Are you aware of your requirements? Most states have numerous regulations regarding the landlord-tenant relationship, meaning that you'll have government-mandated obligations to follow up on as soon as you own a rental property. It would be best if you read up on your state's landlord laws to ensure that you're able to meet all your requirements and comply with the law.
- Do you keep an eye on market trends? The real estate market changes every day. If you're planning on getting into rental investing, you should make sure that you're aware of the market's current state and stay ahead of the curve. If you can capitalize on emerging property trends before they make it big, you'll be able to maximize your revenue.
- Can you screen your tenants? While you certainly want tenants to occupy your property, you shouldn't welcome just anyone onto your rental. Instead, it would help if you took your time to verify that all your tenants have a clean record and are not likely to damage your investment. Without proper screening, you might have significant liability on your hands should your tenant miss payments or even destroy your rental.
- Do you have the tools you need to succeed? Despite what some might say, managing a rental property is a lot of work. You'll have to make sure that rents get paid on time and that each rental is in good condition. You'll have a lot to think about regularly if you do it yourself. However, there are tools in place that can make your job easier.
One easy way to determine whether a property is worth the price or not is to use the so-called "1% rule." This strategy states that your gross income from the rental each month should be at least 1% of its original asking price. With this base income, you should be able to cover routine expenses on your property, and if you earn above it, you might be able to pocket the excess funds for your savings.
Before you invest in any property, you should identify the most profitable areas within your budget and focus on securing a rental within them. Choosing a lucrative location is the best way to make sure that you'll make a return on your investment.
You can't predict when a pipe bursts or the plumbing needs work, so you should make sure your monthly budget can afford to accommodate last-minute repairs, maintenance procedures, and other routine costs. You’ll have a major problem on your hands if something happens and you can’t find the funds to pay for it.
High-end rental property software can automate the most tedious aspects of running a rental, such as collecting payments, screening tenants, and the most up-to-date market trends. Whether you're a first-time property owner or a seasoned investor, the right rental property management software can protect your investment and maximize your profits in the future.
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Schedule My Rent is one of the industry's leading rental management platforms that streamlines your job, whether you're a manager, landlord, or investor. However you plan to use your property, we can help. Call us at (844) 465-3339 for more information about our rental management software today!