There have been a variety of variables, such as a recent inflation jump, historically low borrowing rates, and the tendency of millennials to rent rather than own property, that have contributed to a rise in the acquisition of rental property in recent years.
Do you want to take the plunge and purchase a home to utilise as a rental property? Experts agree that doing so is feasible, but only with much preparation and investigation. There are a number of factors to consider before making a large investment like buying a home.
Investigate buying rental property to see whether it’s the best option for you.
Put out of your mind the stereotypical TV comedic landlords. In order to maximise your rental property’s profitability, you’ll need the meticulousness of an accountant, the expertise of a lawyer, the vision of a fortune teller, and, if you plan to handle maintenance and repairs yourself, the demeanour of an authoritative but friendly landlord. Choosing the rental properties for sale is essential here.
- Ask yourself whether you’re willing to put in the time and effort, as well as if you have the drive and expertise, to manage a rental property before you make the investment. While buying rental property may seem like a hands-off investment, you will still need to be involved in the day-to-day operations of the building.
- Although real estate investments may perform better than other long-term investments, like stocks, over the course of many decades, the area in which the investment is made and the property itself may have a major influence on the investment’s performance. It’s important to consider a number of factors before deciding to increase rent, including your confidence in your ability to do so and the strength of the local economy to bear the added financial burden. Whether or not you finance the property and the terms of whatever financing you do acquire may have a big impact on the return on investment you ultimately receive.
If you’re interested in real estate but don’t want to deal with the hassle of managing a rental property, a real estate investment trust (REIT) might be a good option for you. Publicly listed real estate investment trusts (REITs) invest in various properties and often pay out a significant amount of their earnings to shareholders in the form of dividends. This might be a good way to get expertise in the real estate market without taking on the burden of property management.
Which is better, buying outright or taking out a loan? Think carefully about which of the two alternatives would serve you best.
The best time to buy a rental property is when you have the money to pay for it, contrary to the advice of those who would have you buy before you have the money. Using leverage (like a mortgage) often multiplies both good and bad outcomes.
Consider the purchase of a rental property for a cash price of $100,000, for example. Rental revenue from the property is $12,000. This is after subtracting all annual costs, such as insurance and maintenance. If the income tax rate is 20% and the depreciation schedule is set for 27.5 years, the annual cash payments to an investor will be little over $9,500. Therefore, the annual cash return to the investment will be close to 9.5%. That’s not awful at all.