Investment in Rental Property
Entering into the rental property investment market is a very lucrative business opportunity, but it should not be done without the proper amount of homework and serious research. When buying a rental property an investor should consider three important factors very carefully: the amount of rental income that can be expected, the expenses that can be foreseen, and the possible risks that are involved. It is important to look at all these aspects very closely before making any decisions. Investment in rental property usually involves long term contracts, so it is not a good idea to make hasty decisions that could backfire.
An investor needs to look at the expected amount of rental property income. To do this it is necessary to calculate the cash flow expected from the property so that the investor can see if the investment makes enough financial sense to proceed. Research the area’s tax table and note the taxable income in the area. Start an estimate sheet of possible expenses such as operating expenses, depreciation, and mortgage interest. Taxable income is calculated by multiplying the expenses by three and subtracting this number from the amount of rent to be received. Cash flow for a rental property can be estimated by taking the rental income plus tax savings and subtracting the operating expenses and mortgage payments.
It is not a bad idea to use a property calculator to check the investment. A calculator like this is designed to be used as a guide to the possible economic outcomes of the purchase and rental of an investment property. With most calculators the purchase price, down payment, loan interest rate, loan term in years, monthly rental, rent increase yearly, inflation, homeowners insurance, yearly taxes, monthly expenses, and maintenance fees are entered at the top. After the calculations are done, the results show at the bottom. This is much easier than attempting to make the same calculations on paper.
These figures can also help in the process of determining how much rent to charge for the property. If the rent is too high no renters will choose the property, and if the rent is too low potential income is lost. It is best to examine the average income in the neighborhood, and the amount of rent that is being charged for similar properties. Be aware of certain aspects of the property that might make it more alluring to potential renters like a pool, or a nearby hotspot.
Another consideration when making an investment in rental property is whether or not to be a landlord or get someone to handle those aspects of the investment. An investor who does not want to advertise, screen, and select renters or take care of the tenants’ needs would be wise to find a rental placement agent or an overall property management team.