Rental properties require regular maintenance, repairs, and even renovations every few years. There is also the work of scheduling maintenance tasks, landscaping, and collecting rent. Investing in real estate properties can be more time consuming than many realize. Here are three things to consider when purchasing rental properties.
Is The Property A Good Investment?
The first question that any potential investor should ask themselves is whether or not a property is a good investment. There are a couple of strategies that can help with this. The cap rate is the net income from the property divided by the selling price of the home. The net income of the property is the rent minus the expenses of owning the property. Cap rates above 10 percent are considered to be good investments; however, in some neighborhoods lower cap rates can still be very profitable. Another way to determine whether or not a property is a good investment is the one percent rule. If the potential monthly rent amount is less than one percent of the total cost of the home, it's not likely to be a good investment.
Type Of Rental Property
Another thing to consider when looking into rental properties is the type of property being considered. There are different types of properties that investors should look into, including single-family homes and multi-family properties. Many investors find that duplexes and multi-family apartment buildings are better investments than single-family homes, while other investors prefer to work with fewer renters and invest in single-family homes.
How Much Work Is Needed?
Another thing that should be considered is how much work and time will need to be devoted to the property. Maintenance, collecting rent, and scheduling or doing repairs can be time consuming. For investors who do not have the time to devote to these tasks or who have multiple properties, hiring a property management company, like MacPherson's Property Management, to deal with the day-to-day tasks of managing a rental property is a good idea. The cost of property management for a rental is typically between 4 and 10 percent of the gross monthly income of the property.
Investing in rental properties can be a great way to bring in consistent income. However, there are a few things that should be considered before purchasing a rental property. The first is whether or not it is a good investment. It's important that the property will be able to command enough in rent to cover both the costs of the property and to generate income. It's also important to consider the type of rental property. Some investors prefer single-family properties, while others prefer multi-family properties. The amount of work can be higher than expected. The cost of property management should also be factored in.