Being a real estate investor and a rental property owner comes with a lot of responsibility. Besides providing housing to renters, you also need to make sure your investment is going to make you money. Here are three tips to help you when looking for and choosing a rental investment property.
Buy a Rent-able Property
There are many different factors that can affect the rent-ability of your rental property. The neighborhood can affect the amount of rent and type of renters you can expect. For example, if you buy a rental property near a college or university, you may see many college students as potential tenants. To help you rent out your home easier, you may need to be open to renting the home out by the room to college students, so make sure you are open to this option.
Be sure to do a little research on the amount of rent other landlords are charging in an area you are looking at buying in. If a home is in an older, or run-down neighborhood, you may not be able to get as much rent as you want. The size of the home, including the number of bedrooms and bathrooms can help make a property more attractive to renters. For example, a home with at least three bedrooms and two bathrooms can be more rent-able than a two bedroom, one bathroom home.
Follow the One Percent Rule
When looking for a property to rent as an investment, you want to make sure it has a positive cash flow. A positive cash flow on a property occurs when you can rent it out for more money than the property's expenses. These expenses include the mortgage payment, taxes, insurance, any HOA fees that may be applicable to the property, and any other maintenance and management expenses. For example, if you own a property with a mortgage payment of $1,900 and you can only rent out for $1,500, it is going to cost you money out of your own pocket each month to own it.
So, to help you determine how profitable a rental property is going to be, use the one percent rule as a good rule of thumb to help guide you to consider profitable properties as your investment buying decision. The one percent rule states that for a rental property to be profitable, the monthly rental income should be at least one percent of the mortgage amount. So, for a $200,000 property with a mortgage on the home's full price, you should be able to rent the property for at least $2,000 each month for a positive cash flow. Then, if you put 20 percent down on the purchase and only have a mortgage of $160,000, you should be able to rent it out for at least $1,600 each month to have a positive cash flow.
Remember Maintenance and Repair Expenses
As you analyze a cash flow potential on a potential property and after you take ownership of a rental property, it is important to remember to budget for repairs, upkeep, and other unexpected maintenance costs that are going to come up. As the landlord and owner of the property, you don't want your property and its exterior to fall into disrepair, as it can cause your property to lose its value. And you don't want to put off fixing small items in the property your tenant makes you aware of. Making tenant-requested repairs keeps your tenant happy, remaining in your property, and paying you rent. A dissatisfied tenant when you don't take care of small repairs can cause them to not renew their lease and move out when their lease ends.
Some of these repairs and other costs can include repairs to the home's heating, cooling, plumbing, roofing, and electrical. It can also include replacing HVAC filters and light bulbs, painting, carpentry repairs, and cleaning when a tenant moves out. This maintenance budget can also cover the mortgage while your rental property is vacant and costs in advertising and screening new tenants.
As you budget for extra expenses on your property, Fannie Mae recommends to save up at least two percent of the property's value each year to pay these costs. For example, if your property is worth $200,000, you should put aside at least $4,000 each year to cover expenses.
Use these tips and talk with real estate agencies, like Infinity Properties, to help you invest in a rental property.Share