Helpful Tips for Purchasing Your First Rental Property

When it comes to investing in the real estate industry, you need to dot your i’s and cross your t’s to ensure that there will be a return on your investment. The world is in a time of economic uncertainty, even as it recovers from the COVID-19 pandemic. Now more than ever, people need to be smarter and more strategic about growing their wealth. Especially in acquiring investment opportunities, people need to do thorough research and enlist the help of trusted professionals, like a real estate lawyer, a broker, and others, before making big decisions.

If you are thinking of investing in a residential or commercial property to rent it out this 2021, here are some helpful tips and pointers you need to know:

Calculate and Study the Cash Flow

The cash flow is simply the money that will flow from and to the property. Money enters through rental payments from the tenants, while cash flows out in running and maintenance costs like mortgage payments, utilities, rates, and body corporate fees.

You have to accept that in the beginning stages, which can sometimes take years, you might not see a profit, and you might have to experience a slight loss. This is because the rent may not be able to cover the mortgage payment and the additional expenses. The only time you might be able to make a profit is when your mortgage payments slowly decrease and the rent rises. But this process won’t happen overnight. It might take some time, which is why it is vital that you calculate the cash flow and that you are ready to face whatever losses you will incur before you make a big commitment. Talk to an experienced broker before you do the sums on your own because they can help you gain an insight into additional factors like land tax, rates, and strata fees.

Understand How Property Depreciation Works and Work It to Your Advantage

Here is a fact about all kinds of properties: they depreciate over time. The onus is on property investors and owners to slow down this process or prevent it altogether. To know how a specific property will decline, you can calculate how much it costs to run against the income it produces. You can eliminate the difference against your taxable income as a property owner.

When you take note of the property’s structural elements, equipment, fixtures, and other factors that break down and need fixing or replacing along the way, you can claim the expenses you incur as an annual deduction. This process is called negative gearing, and it is allowed in the United States but with certain restrictions.

rental properties

Identify Your Goals and Choose a Property That Will Help You Achieve Them

Here are three examples of clear goals that can help you determine what kind of property you should invest in:

  • You want to improve your cash flow in the long term.
  • You want to sell the property for a profit later on.
  • You want to try the business of house flipping.

Knowing your goals will help you narrow down your choices of properties because specific properties make better investments than others—depending on your goals and strategy. Take into account the demand in the area, ongoing maintenance fees, how the property will appreciate or depreciate over time, and the future of the location. When looking for a place, you want to ensure that it’s somewhere that constantly attracts a revolving door and a reliable supply of tenants.

Location, Location, Location

Speaking of location, there’s a reason why this three-word saying or reminder is ubiquitous in the industry. Location is everything in real estate, and you want to ensure that it supports your vision for your property investment. For example, if you’re looking to attract young professionals, you want to find a place with enough entertainment, good restaurants, and others. If you’re going to attract families, then a multi-bedroom home in the suburbs might be your best bet, and you want to choose a place many people consider safe and has proximity to parks, schools, and public transport. And lastly, don’t get too lost in the financial details that you miss out on choosing a prime location.

Investing in commercial or residential properties might be one of the safest and less volatile options to want to grow your wealth nowadays. Do your research, consult with market specialists and professionals, and establish a foolproof strategy that will help protect your financial, mental, and emotional investment. You can do it!

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