With interest rates at historic lows, now may be the perfect time to invest in a rental property. If you are thinking about making the move, here are some things to consider.
Look at owning and managing rental properties with a long-term view. You will rarely increase the value of your rental property investment over the short term. Increased wealth comes from growth in equity that typically occurs over time.
Ensuring long-term appreciation should be your first consideration when deciding which property to buy. Location, location, location may be an overused term, but it still holds true. You can change virtually everything about the property except its location. Be wary of buying a property in a high vacancy location or in areas that are declining economically or aesthetically.
Although you can improve many aspects of the property, you may want to stay away from houses that require comprehensive repairs. You can get these “fixer-uppers” for a discounted price, but the money you save often won’t cover the cash required to make the property presentable.
The Here And Now
While building wealth over time is your primary goal with rental property investing, you also need to make sure that in the short term your property is cash flow positive.
That starts with negotiating the best possible financing deal. You’ll get the best package if you have good credit and are able to put 20-25% down. You’re also more likely to be approved for a mortgage if you plan on making one of the units of the property your primary residence.
Living in your investment property initially is wise for other reasons as well. Rental property management involves handling issues on a regular basis and you might be able to resolve some of those by learning about your property while living in it. You can then make whatever upgrades or repairs are needed so that when you move out, the property becomes much easier to manage.
The key to ensuring positive cash flow is to know and control your costs. Before making an investment you need to calculate the operating expenses of the property including taxes, insurance, homeowner association fees, landscaping, maintenance and property management fees. If you are going to manage the property yourself, you can reduce your costs by using integrated property management software.
There are risks and rewards involved in rental property investing, but if you do your homework you have a good chance of being successful.