Investing in property can be a great way to increase cash flow, build equity, and secure a better financial future. Of course, there are plenty of challenges to acquiring investment properties and investing without proper preparation can be a recipe for disaster. Anyone interested in entering the lucrative field of property investing should be aware of the following pointers.
Location, Location, Location
It has become a cliché in real estate, but location is hugely important. Location dictates everything from the price you pay to the price you can charge to taxes and the ease with which you will find tenants. Investing in a college town may seem like a great idea, until you find out that the students tend to be unruly or destructive. In may even be that one side of the street is better than another, that local government is difficult to deal with, or that the area is prone to long dry spells due to over-reliance on a particular industry.
Learning about the area in which a property is located is critical to making an informed decision about how the investment will pan out. The best way to get a feel for location is to speak to the locals. If there are property managers in the area who will speak with you candidly, listen to what they have to say. See Heatheringtons in the area you are interested in, for instance, to get an overview of things like taxes, local government, potential tenants, etc.
Before even considering properties for investment, you need to have a firm grasp of your finances. Rental properties are inherently riskier to purchase and manage than personal living spaces. You’ll need to ensure that you can cover mortgage payments even if you don’t have tenants and that you can afford any emergency repairs that insurance may not cover (e.g. broken pipes, leaking roof, etc.). Finally, you’ll want to have a separate account for your rental property that isn’t linked to your personal accounts.
Part of financial planning includes understanding the real estate market, both locally and nationally. You don’t want to invest when prices are high or set rent at the wrong level. In fact, setting rent is a real science. You need to set it high enough to attract the clientele you desire, but not so high that you price yourself out of the local market or so low that you can’t make ends meet.
Choosing the right mortgage is also a bit of an art. There are many options for financing rental property, but a financial advisor may be able to help you make quick work of picking out the best loan for your situation. Consider the benefits and drawbacks of various tax benefits, government incentives, interest rates, and your investment property as they apply.
The biggest way to reduce headaches, improve cash flow, and make your investment work for you is to find tenants who will care for the property, pay on time, and provide you with positive word-of-mouth. Screen tenants by looking at employment, income, and credit history. Ask for social security numbers and driver’s license numbers so that you can check about past evictions or bankruptcies. Finally, make sure you check the references that are offered. A few well-placed phone calls may cost you some time upfront, but will save you both time and money if you can weed out a risky tenant.
Don’t forget that tenants are going to screen you and your property as well. They’ll be looking for how fairly you’ve treated past tenants, if there are legal proceedings against you, and how well the property rates on Internet reviews. They are also going to be interested in the condition of the property and in what type of amenities it offers. You’ll have to tailor your property to not just the type of tenant you want, but to the type of tenants the area attracts.
The Long-Term View
Property investing is not a get-rich-quick scheme. Some people do stumble into a great investment that turns around quickly, but those tend to be happy accidents. Rental properties often don’t produce immediate equity, though they can generate immediate income. It is best to consider any income property to be a long-term investment, both in terms of the income it will generate and in terms of how risk is managed.
Bolinda Brennan works in estate management and is always willing to share her property investment insights online. She is a regular writer for a variety of property-related websites.