In the U.S, the rental property market as seen a boom during 2007-08 and turn down in recent years resulting in foreclosures and nationwide desertion. In the UK, using the buy-to-let programs, many individuals purchased homes just for the sole purpose of letting it.
Rental income from an owned property can really be a good source of monthly income and a good return on investment in a longer run. But, prior to looking for houses for rental purpose, there are major things you may need to consider.
- Crunch the numbers
It is vital to calculate your affordability for spending on a rental property.
- Financing– If you are going to borrow money from a mortgage broker/bank as if you are not dealing it with cash, ascertain the total value of money you can borrow, any deposits that you may need to make use of. Also, find out the expected return on investment and approximate rental value for the property in the present market trend.
- Transaction Fees: Consider additional cost factors like stamp duty, tax, legal fees etc., as they get differed with distinct states and countries. So, prior to invest, it is must to research and review related information.
- Management Fees– You have to decide how you will manage the property once you own it, either by yourself or by paying a property management company. Property Management Company will handle everything for you starting from finding a tenant to organizing for repairing once the tenant are in the property. If not, you have to arrange these on your own cost.
2. Go with desirable choice of location
Based upon your estimated investment plan, it’s time for you to choose a right area to invest.
- Friendly Neighborhood- It is advisable to purchase a rental property where people prefer to stay as tenants. It may sound good to buy a cheaper property, but if finds to be neglected neighborhood or in a run-down location, it becomes hard for you to find decent tenants. Getting a worst house on a neighborhood friendly area can be a good choice as you can fix it and get a good appreciation value on it.
- Easy access to transportation and amenities – Consider the property with easy access to good schools, transport routes and facilities such as supermarkets and shopping malls. If you have an idea of letting it to students, then locate a property nearby colleges or universities.
3. Decide your target tenant
As mentioned earlier, it is must consider your choice of targeted tenants out of the distinct sorts of tenants and their needs.
- Students – Students prefer to rent a comfortable, clean without any fancy property to stay. They expect fully furnished rental property as they can relocate anywhere anytime easily.
- Single Families: Family tenants are distinct and they expect unfurnished houses with neutral decoration. As a tenant, if you permit them to hang pictures or paint walls once you let your property with their favorite interiors; they feel like staying at home and will stay for a longer run.
4. Consider Return on Investment
Once you decide about regarding the type of tenant, it’s time to find homes that fits your requirement
- Make the Best “Business” Decision- You should consider the rental property only with business perspective and figure out the rental potential of it through research.
- Consider an Agent- As rental property agents are experienced, they can help you in finding a better deal.
- Negotiation– You must be ready to haggle on price, if you really like the rental property and if the property requires any building repairs, you can make use as a tool to price down.
- Cash only transaction – It will be fortunate for you if you can make full cash payment for the deal as the seller will be happy to transact with such quick sale.
- Using financing – Make detailed research while opting for borrowing money to find the best mortgage rates. A mortgage broker can help you in comparing and finding the best mortgage program.
5. Be ready for the worst
It is uncertain to predict the return on investment as the real estate market greatly fluctuates.
- Vacant- It is possible that even most popular areas remains to sit empty without tenants. So, you should plan for at least two months of your property being empty, hence offers you with best buffer of money.
- Delay Rent Payments- Even though the majority of tenants pays rent on time, you may also expect late payments as if they fall on their hard times. Go for landlords insurance coverage to compensate the loss.
- Rely on Debt collection agency – If a tenant abandons the property, fails to make a rental payment, or in case if you need to evict them, you can rely upon debt collection agency for help to recover your losses.