If you have decided to start the search for a rental property there are several key items to keep in mind. This is a large investment of your time and money and, if done right, you can reap the rewards.
The most important thing to consider is obviously your budget. With an investment property you want to be able to enjoy a comfortable profit margin. Your final purchase price will play a role in negotiations with potential tenants. Would you be able to attract a great tenant with a slightly lower monthly rent than the competition? Another very important factor to consider is if it needs to be rented at full-price to turn a profit. Think about down turns in the economy. Will you be able to sustain the property if it is unrented for two or more months?
Are you willing to do renovations or would you prefer a turn-key property? Understanding that the purpose of owning an investment property is to bring in more money for you is key. Some renovations will be necessary (ex: the furnace doesn’t work properly or the windows leak). Be sure that the changes made are cost effective. You want your home to be clean, well taken care of and functional in order to attract a good quality renter. If the kitchen is in good shape and practical, leave it as it is; even if you cannot stand the completely out dated cabinets. You cannot charge more rent than the location/size of the home allows for. Adding costly renovations will eat away at your profit margin. Be aware of potential variable expenses such as repairs. You want to leave yourself with some “wiggle room” to comfortably handle these sudden and unexpected costs.
Another element that will affect your budget is whether or not you hire a property management firm. Do you live close enough to your rental to be available to your tenants should they require your help? Property management firms are a fantastic tool to have; however expect to pay in the vicinity of 10% of the monthly rent.
When you have found a property to purchase, a building inspection is definitely something that you should consider. An inspection can turn up hidden flaws that will potentially cost you money in the future. Deficiencies in the home that show up on the inspection report can be negotiated in the purchase contract. Perhaps the owner is willing to have repairs made or you can settle on a lower purchase price in lieu of those repairs.
The key to having a successful investment is knowledge and patience. Take your time to find the right property for you. Biting off more than you can chew will only make the process more stressful. The above considerations are merely a sampling of all there is to contemplate when searching for a property. There are so many variables to consider when you begin your search. A Realtor is a great resource to use when searching for the perfect property. Our overall knowledge on real estate is second to none and we are here to help you every step of the way!