Having a good rental property can pave the way for decades of passive income generation. However, if you have never owned rental property before, there are a number of critical steps you will need to take in advance to make an investment of this size. Purchasing your first rental property in a hurry can lead to long-term losses and exorbitant regrets. As such, anyone preparing to enter the property rental game is highly recommended to attend the following tasks.
Ensure that the property undergoes professional inspection
Buying a rental property that has not undergone a professional examination is practically a problem order. No matter how meticulous the property’s maintenance seems, there may be serious issues lurking beneath the surface – issues that you, as a non-professional, are not qualified to identify. With this in mind, a pre-purchase check – or multiple checks before buying – is a prerequisite for any property purchase. You may even find that these inspections are required to secure the property.
Professional property inspectors will be able to identify a range of issues that the rest will never think to look for, thus ensuring that no ill-considered investment decision is made. These inspections are necessary to determine how much work the property needs. After all, the last thing you want is to be aware of necessary – and expensive – repairs or renovations long after the sale is completed.
No matter how much a particular deal means to you, you should never allow the seller to take you out of inspections. Even if this is not an attempt to hide problems with the property, such behavior is very suspicious, and if the seller is determined that inspections cannot be carried out, it is wise to simply walk away from the deal and focus on taking care of other investment opportunities.
Ensure that the property is located in a profitable area
It is not hard to see why many real estate investors consider location to be vital. Properties located in areas with strong local economies and high housing demand tend to command higher sale and rental prices than properties located in areas where demand is waning. So, before you embark on investing in your first rental property, be sure to do a little research into its location. It is also a good idea to look for the best countries for real estate investment. Said research should entail a deep dive into the area’s home prices, rental rates, crime rates, and the local economy, as these factors should give you a good idea of how much rental income a property can generate.
Calculate the cost of property management
If you are looking to invest in a single family property, managing this mentioned property is not likely to be particularly difficult or time consuming. However, if you have your sights set on a multifamily property with dozens – if not hundreds – of units, your work will be cut short for you. For example, properties of this size often require a large amount of maintenance and full-time maintenance personnel. Needless to say, in these cases, management costs will eat up a significant portion of the income that the property generates.
Therefore, before purchasing your first rental, carefully calculate the cost of hiring a maintenance crew and weigh it against the income you expect to generate through the property each month. Additionally, if you’re not interested in the idea of making property management your full-time job, calculate the cost of hiring a professional property manager. When it comes to apartment buildings, apartment complexes, and other large rental properties, a property manager is essential to ensuring good tenant communications, prompt payment processing, and effective delegation of maintenance tasks.
While good rental properties can serve as a steady source of passive income for decades, not every property you emphasize will be an equally profitable investment. Given the amount of capital required to purchase a rental property, buyer’s remorse is the last thing you want to feel in the wake of such a purchase. Fortunately, there are several steps you can take to reduce your chances of making an unwise investment. Doing the tasks described above before purchasing your first rental can help ensure that you make an informed purchasing decision.