It’s only natural that anyone looking for a convenient source of passive income would consider purchasing a rental property. After all, good properties in popular areas often generate significant amounts of money on a monthly basis. However, while purchasing the right rental property can be a boon to your finances, purchasing the wrong one can prove tremendously draining on your time and money. That being the case, it’s imperative that you do your homework before committing to investing in your first rental property. So, prior to signing any paperwork, make sure to consider the following questions.
How Much Maintenance Will the Property Require?
As any experienced landlord can tell you, owning a rental property isn’t purely about making money. In order to keep any rental residence in livable condition, you’ll need to regard maintenance as one of your top priorities – and be willing to spend the money associated therewith. In many respects, the amount of money you’ll spend on maintenance depends on the size of the property. For example, if you’re investing in a small single-family property, maintenance costs are likely to be fairly reasonable, especially if you’re able to undertake most of the maintenance tasks yourself.
However, large properties are a different story. If you’re interested in purchasing an apartment building or condo complex, you can expect to spend thousands of dollars a month on maintenance costs. Full-time maintenance personnel is often needed to properly care for properties with dozens – or hundreds – of units. So, when calculating the cost of monthly maintenance, you’ll need to factor in these individuals’ salaries.
Property taxes are another additional cost you’ll need to consider. Depending on the size and location of the property, you may be on the hook for a small fortune in annual property taxes. This is why it’s important to not only consider a property’s sale price, but also the many expenses associated with rental property ownership, before investing.
What Kinds of Repairs/Renovations Does the Property Need?
Many of the rental properties you’ll look at will need repairs and/or renovations. Of course, this isn’t to say that the size and scope of these jobs will be the same for every property. Still, if a rental property you’re interested in purchasing requires large-scale repairs/renovations, it’s best to know exactly what you’re dealing with before proceeding to close the deal.
With this in mind, make sure to have every property that catches your interest professionally inspected. Seasoned inspectors will be able to spot issues that are bound to escape the gaze of non-professionals. Once you’ve received a full assessment of the property and any problems therewith, obtain estimates from various contractors, as this will give you a good idea of how much you can expect to spend on fixing existing issues with the property.
This is just one of the many reasons for which professional inspections are imperative. Discovering large-scale issues with a property well after a sale has gone through can prove both financially damaging and immensely stressful. As such, you should avoid sellers who refuse to allow inspections to take place. Such behavior is extremely suspicious and creates the impression that a seller is actively trying to hide known problems with the property.
Where is the Property Located?
In many respects, a rental property’s location is the most important thing about it. For instance, if you invest in a property that’s located in an area with low housing demand, low median income, high crime rates, or any combination thereof, you’re liable to have trouble generating the desired profit. So, no matter how enamored you are with a specific property, it’s in your best interest to thoroughly research its location before proceeding to purchase. By the same token, you stand to benefit from brushing up on the best state for real estate investing.
Investing in a good rental property can effectively set the stage for long-term financial gains. Mind you, this doesn’t mean that every vacant rental property represents an untapped cash cow. There are a variety of factors that go into determining a property’s overall profitability, and failure to do your homework stands to result in considerable buyer’s remorse. So, before closing the deal on your first rental property, remember to ask yourself the questions outlined above.