Rental properties are a significant investment that can pay out much more than trading stocks. However, as with any investment, there are potential pitfalls for the uninitiated. Without a transparent understanding of the basics, you can easily make unintentionally risky decisions. You don’t want to make a significant financial investment and end up losing your money. Hence, property owners’ insurance is essential for peace of mind. You also do not want to struggle with rental payments, so you may want to consider using the services of a rental agency.
You can cover yourself several ways, and being informed is at the very top of that list. So today, we look at the five rental property tips to ensure that you make a wise first purchase.
Location, Location
It’s a cliche in the real estate industry, but the location of a property is everything. When it comes to rental properties, the area is more than just deciding on a neighborhood that you prefer. A rental property needs to offer a decent rental return. In some cases, buying a property in a high-income area may make it harder for you to charge a rental fee that garner’s the rental income you need to cover your investment expenses.
When buying a property for the express purposes of renting, you need to consider the socio-economic aspects that will impact the price you pay concerning the rental returns you can expect from your investment.
Lease Duration
This is another factor that the location of your rental property could impact. If you decide to purchase a rental apartment in an urban area, it is usually best to lock down a set, long-term rental agreement. On the other hand, if you buy a property in an area with seasonal demand, such as beachfront property, you will need to weigh your options regarding the duration of your lease period. It might be beneficial to consider your options depending on the type of returns you expect from your rental property.
Bigger Isn’t Better
Like the importance of carefully considering the area in which you choose to purchase a rental, you must understand the ROI on the size versus cost ratio of a property. Reasonable rental prices do not scale up well. In this sense, a smaller rental property can turn more profit than a larger one. There is also the matter of capacity. It is almost always preferable to rent a property to one or two individual tenants.
Meet The Locals
The neighborhood residents can play a massive part in determining hidden value in rental property. An area with an active and personable neighborhood association can improve the area’s safety and incentivize tenants to stay on for longer.
Looking Forward
One of the more tricky aspects of buying a rental property is determining the property’s future viability. An area that faces constant growth and proximity to a stable industry is more likely to maintain its rental value. Many people have purchased a property to let it, only to find that the area succumbs to an economic downturn a few years down the line.
Many experienced investors will look to new developments situated on the outskirts of economically stable commercial hubs to try and get around this.