Rental properties are everywhere. From the center of the city to the outskirts, they can be found almost anywhere. People often see it as other real estate properties. But, investing in rental properties is quite different from other real estate investments because it carries its own intricacies. Your expertise in real estate might not come in handy if you choose to include a rental property in your portfolio. So, here are a few tips: 5 things you must ensure while buying a rental property.
is probably the best and the also the first parameter you should consider. Without the ability to generate cash flow a rental property is as good as nothing. How much would your rental property generate in the month to come, should be your highest priority. It’s all about the best ROI.
some people might buy a house without amenities without giving it a second thought. But, no one would jump the gun and rent a house without these in place. When you are buying a house, you generally consider the future because amenities might grow in the future. For tenants, it is all about the present.
You might not want to buy a rental property near a college. It will most likely be empty for 2-4 months of the year. Well, ultimately, it is going to affect your cash flow. You don’t want your rental property to be empty for a single day, do you?
Most talked about, but often ignored! Yes, I am talking about property taxes. Since they can be dynamic, you often need to adjust your monthly rent. If the property taxes are high where you choose to buy, you in-turn would raise the rent bar to accommodate the taxes, not to mention how it might affect your prospects.
No one wants to live in an area with high crime rates. The tenants might compromise with all the above factors I mentioned above. But no one wants to put their lives in a crime-stricken area. An unsafe locality can be a major turn-off for prospective tenants.
A rental is an income property; It is a property bought or developed with the sole purpose of earning income. The advantages of investing in rental properties are powerful. If everything goes well, the rental owner will make lots of money for sure. Here are some lucrative reasons that make rentals the best choice for real estate investment:
Rental properties provide a regular cash flow. The biggest benefit of owning a rental property is that the renters will provide you with a direct income stream. The cash-on-cash value of rentals is usually higher than that of any other property. The cash-on-cash value represents the ROI of the investment you have made. Along with it, your property can produce Passive Income for you.
Passive Income is the monthly income that you do not have to work for. All the rent money that is left after the mortgage and other expenses are paid is counted as passive income. And as time passes, appreciation also gets included in the passive income. Appreciation is the increase in value in the rent over a specific period of time. All this money goes straight into your pocket. You can easily get leverage for a rental property.
It is easier to get financing for rental properties. This means that rental properties can be bought with loaned funds and a smaller percentage of the total value is paid from your pocket. You can also leverage lower down payments on equity and lower taxes. They allow an investor to make more money through higher rent and appreciation and increase the returns. You get sweat equity with the financial property.
Another factor that should be considered is that the sweat equity you will gain with the rental will add additional value to the property. You’ll get the opportunity to fix up the property in between tenants, which will return attractive dividends to you. Doing maintenance and upgrades on your property like repainting the home, refinishing the interior, landscaping the yard etc., will add value to your property at half of the financial cost. Not only will it help you add appreciation to the rent, but it will also increase the value of the property itself. This will help you when you want to re-sell the property in the future. So, if home improvement projects interest you, then the rental property is for you.
Rental properties have great tax advantages; As a rental property owner, you can enjoy huge deductions on tax. You can write-off a list of things that tend to reduce your taxes. The list includes insurance on the property.
Bookkeeping/accounting/tax preparation fees; You can also depreciate certain expenses from your income, which can reduce the taxes you owe like the salary of any person you employ to provide services for the property like the management and repairs/upgrades to the property, property taxes, mortgage interests, and the cost of providing utilities if they are included in the rental agreement. As a rental owner, you are entitled to lower tax rates on the profit you make when you sell the property.