Investing in real estate is one of the best ways to earn money. You may spend quite a huge amount in the beginning, but if you do it right, you will be reaping its rewards before you know it. However, you should know there are good and bad real estate investments, and this is why you need to be careful before you start. This piece is filled with information helpful in finding the best rental property to get you on your way!
There are some things you need to consider before buying. Not doing your research means you could lose your entire savings on a bad investment. You should, for example, know how to calculate ROI on rental property in order for you to make a more informed decision. Below are some other crucial things you need to know:
1. Find the right location
Location is key to having a successful rental property. No matter how nice and cozy the property is, if it is not in a good location, you will end up with an unleashed property. However, keep in mind that buying a property in the middle of the city is not always the best option as well. Property tax can be very high in such areas, and if you want to make money, you will naturally increase the price of the rent. This means that your target market will shift. The higher the rent, the less chance of your property being rented.
Finding the best rental property will often lead you to neighborhoods that have low crime rates and a growing job market. It needs to be easily accessible and perhaps has a good school, some amenities, and businesses such as stores where your tenants can shop.
2. Understand your borrowing position
Before you go and get excited about a property listing, you need to determine how much you can borrow. Make an appointment with your bank or whatever company that is going to finance your business endeavor before you search for a property.
You have to know how much money you can loan and what their interests are. Remember that each property can have different interest rates. Commercial properties or investment properties have higher interest rates than your normal mortgage rates, such as the mortgage rate on your house.
You can also calculate that LVR, or loan-to-value ratio, so you will know the risks. LVR means the ratio of the amount of money borrowed to the property you want to purchase. LVR is crucial because it could mean lower interest rates for you if the LVR is low. If it is high, it could mean a higher risk for the lender. Here is a great LVR guide on St. George should you want to learn.
3. Find out the average rent in the area
If you are interested in a property in a particular area, you need to know what the average rent is in that same area. If the property is expensive, but the average rent in the area is low, you will have a problem making money from that property. Remember that you will have to pay the bank as well as property taxes. If the rent is only enough to cover these, you are not going to make any money.
However, you can also do some research on the area and where it may be headed in the next five to ten years. If there is potential growth in the community, then it could still be a good investment.
4. Try to avoid fixer-uppers
If this is your first rental property investment, you should avoid a fixer-upper. This means that the property needs a lot of repairs. When people are not trained on what to look for or inspect in a property, they end up shelling out too much money on repairs and renovation.
Even if you have found a property in a great neighborhood and for a good price, you will need to have it looked at by several renovation companies so you will have an idea of how much it’s going to cost you to repair and renovate.
If the cost is minimal and fits your budget, it may not be a problem. However, you should know that major renovations cost a great deal of money. It’s better that you buy a property that costs a little bit more and learns how to preserve property investment properly.
5. Calculate your ROI
When you have all the information such as mortgage payments, property taxes, and maintenance costs, you will need to calculate your return on investment (ROI) and see if it is a healthy return. Also, calculate returns for the next five and ten years.
Conclusion
Investing in property is worth it, but it takes a lot of work and effort in order to find the right one. You have to be willing to do a lot of research because it involves so much money. However, finding the best rental property for your situation will earn passive income. This will grow over time. And you’ll likely discover more ways to generate income.
