Owning property, it is well known, is a fantastic way to build wealth. Most get rich (slowly) books, will have some kind of angle on the concept. Essentially, rental property can be an income generating appreciating asset. It is a mouthful, but in layman’s terms it is a very good thing. Do it right, and the whole exercise will cost you very little and, over time, yield you a fortune.
Right about now the ‘it-sounds-too-good-to-be-true’ alarm bell should be going off. Yes, there are certainly some things to consider before you sign that offer to purchase and begin your career as a property magnate.
Firstly, don’t do like every bank has done. Plan for the worst case and don’t pay yourself a fat bonus just because you can. In practical terms this means, do your homework carefully. Research the total cost of the purchase. Calculate your exact monthly cost including mortgage payments, taxes and other monthly expenses that may be included. Account for the cost of obtaining a tenant, either through an agent or by advertising. Know what the rental demand is like in the area and what average rent rates people are paying.
You should budget between 5-10% of the gross rental income, depending on the condition of the property, for maintenance. Most leases will specify that the broken toilet and leaking roof are your responsibility. It’s a great idea to look into local property management companies to leave the tenant issues to the professionals and enjoy more of your time and money earned from the rental property.
Once you have figured it out all the figures and the answer comes back that it is an affordable and attractive investment, the next question to pose is what is the worst case scenario and can you afford it? For example, your broke tenant is refusing to pay rent, you need to employ a lawyer to evict him and then still pay for repairs when he is out. The rental market goes soft and you sit for x months without a tenant. Can you cover the mortgage and other costs for 6 or 12 months, long enough to sell, should no end be in sight?
Still coming up with a “Yes!” then you sound like a shrewd investor with some coin stashed away. Good for you. You probably saved it up by applying common sense and making good decisions.
Now is time to do more of the same. Shop for discount properties but don’t exclude higher value rental property investments if the numbers justify the purchase. A cheap home may turn out to be an expensive repair job waiting to happen. Buy your investment property with prudence. Screen your tenants carefully, sometimes waiting a little while longer for a good tenant makes more financial sense in the long run, not to mention saving you some gray hairs.
The only thing worth adding is that your approach should be a positive one. It is easier to make money if you enjoy what you are doing. For guidance getting started, contact us today!
