In Part 1 of this blog series, we discussed- “Are Rental Properties a Good Investment”?
There is more information than ever on real estate investment. Although benefits are numerous in real estate investing, those who are considering getting into the business should carefully study and learn from successful investors before taking the leap.
Seasoned investors know that finding the best rental properties is CRITICAL in being profitable in this industry. Finding the right opportunities for your investments ensures that you have predictable income over the coming years, and that you continue to see growth in your investment.
Choosing a property that can pay you a “cash-on-cash” return on your investment is optimal. Calculate the possible cash income of one property in an area for a year, then compare it with the amount of cash you spent acquiring and preparing it for rental. If your calculation gives you extra cash after a year, then that property is a good choice for an investment. There are certain formulas to do this but it depends on the type, condition and location of the property you intend to buy. Also include renovation costs and of course, your time and effort.
Depending on the number of years you intend to have it for rental, you can dictate the amount of cash return you will earn in that time.
We all know that real estate investment can be a risky form of investment. However, for those who are successful in the business, it’s because they’ve maintained a good eye for property investment opportunities. They ensure that they keep negatives (risk) to a minimum, if any at all. These negative aspects can include an unfavorable market location for good tenants, poor proximity to amenities, an unkempt neighborhood, poor crime stats and other aspects that can hurt your success as an landlord.
Figure out if there are any negatives about a property before investing- is it something you can improve? If there are too many negatives to name, then you should move on to a different option. It is also safer to buy properties under your own name instead of taking chances with established landlord groups, Tenants in Common (TIC), fixer-uppers, and other investment providers. These investment providers can sometimes cause unforeseen problems. The lower the risk, the more chances of getting higher returns.
What we mean by “lesser stress properties” are those which do not require too much managing on your part in terms of maintenance and time. Some examples of high stress properties can be vacation or resort rentals, college rentals, properties in bad areas, etc. Avoiding such properties can lessen the tedious tasks of managing your rental properties and a high traffic of incoming/outgoing tenants. You’ll have more time to plan and look for your next investment projects if your time isn’t wrapped up running day to day operations on current properties.
Don’t get caught by surprise! Bills on your property taxes can boost almost 300% overnight! This has been a major problem for many new landlords who did not anticipate a sudden increase of property taxes they’re required to pay.
One trick here is to adjust your monthly rental price to cover for those taxes and other expenses you may have for your rental property. However, it’s important to charge fairly and with fair warning for tenants to abide by the landlord-tenant agreement.
Not sure how to find the best tenants? Finding good people to rent your property is vital to keeping your property protected and your tenants safe and happy. This ensures that you will have a predictable income for months and years to come from your investment. You will find our best solutions for finding good tenants for your rental property here.
Expect minor and major repairs for your rental property during the course of your ownership. This is part of managing your investments, to improve its condition and value of the property itself. If you aren’t qualified to perform home repairs, fixes and upgrades, then it’s important you hire someone who can do this work for you whenever it’s required. Depending on the type of property, you may have more or less responsibilities, so take this into consideration.
There you have it! CPD Home’s guidelines and tips for folks who are considering venturing into rental properties! I hope we answered your question “are rental properties a good investment”. Please feel free to reach out at 216-282-4332.