Buying Investment Property - Rentals Strategy
Buying a residential property is probably the easiest way for a start-up investor to join the property investment market.
Of the different kinds of property investment, buying residential property to rent out is probably the easiest of business models to get your head round. After all, you're living in a house yourself, so you can appreciate what to look for when buying and what your tenants will be looking for themselves. Plus, if you are at all DIY enabled, you can do any repairs or redecoration that may be needed before renting it out.
But, don't get blinded by dreams and ambition. Property investment is a business and should be treated as such - put your emotions in a box while you're evaluating potential properties. Be sure to study your local market, expected rental rates, and tenant turnaroud. Ideally, you will already have a clear business plan modeled out to keep you on the straight and profitable.
You can use the following four steps to get you started:
Step one: Evaluate your goals.
Be clear exactly how much you want to get involved in all aspects of your property portfolio. So think about whether you want to manage them (get the rents yourself), or have an agent do this for you (on a fee/commission). Who will do any repairs/redecoration (if not you, it has to be budgeted for). What kind of property do you want to rent ... family, student, business ... All are different with specific requirements.
Step two: Check the market.
Have a plan and stick to it. Work out the market and what the rents are for different specific markets. It's always easier starting out getting to know one area and buying properties there - local specialized knowledge gives you an important edge. If you are looking to rent residential properties as opposed to flipping them:
- Is the area on the up or on the down. You don't want to buy in an area with loads of empty properties.
- Are the property prices in the area stable, moving up, or moving down.
- How long does it take to sell? If good properties take for ever to sell, this is a bad sign.
Step three: Don't be alone.
You don't know everything. Pay for advice and support. Having a friendly estate agent, property lawyer is a start. As your business grows, get a good accountant and develop a relationship with all the people you will need to restore and maintain your properties. Having a regular team you can trust means you can focus on the investing.
Step four: Choosing the property.
With residential property you want to target where there is demand for rentals. Different target groups have different needs. Families will want safe and secure areas, with gardens, good local schools and facilities near. Students want to be near their college and are less concerned about amenities - price is their focus.
If you do buy property with those expensive extras - jacuzzi; hot tub; loads of outbuildings; etc etc, you'll have bigger repair bills and insurance. Keep it simple and clean.
Keep your tenants. Having a good tenant who looks after the property is worth it's weight in gold. Sometimes it's worth helping out a tenant for the sake of the long term.
Buyers market? With the current economy yes, there are more bargains to be made. And yes, there are many more people looking for rentals. But you have to examine why. Be sure that whoever you rent to, can afford your rent for the long term, with sound guarantees.
Don't trust to luck. Plan your strategy as much as you can. Remember the old adage, people who fail to plan are planning to fail.
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