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What you should know before investing in rental property

by , 15 September 2014

Many people are turning to rental property as a way to diversify their investments and secure their financial future. Real estate remains one of the more stable investments.

Before investing in rental property, you should take into consideration certain factors, such as the risks involved, the annual expenses, and the expected rental income.

How can you know whether investing in rental property is right for you?
 
Before buying rental property, consider the following.
 
The one percent rule
 
The guideline is that you should only buy a property if the gross monthly rent you can get for it equals at least one percent of the purchase price. If it doesn’t, the property is not worth the investment.
 
Annual expenses
 
You should also consider the annual expenses, including insurance, property taxes, general repairs and maintenance services. Don’t forget about emergency repairs, such as plumbing, fixing the air conditioner, or replacing a broken window.
 
Location
 
The property’s location will play a major role in the rental price and overall value. Search for areas close to good schools and shopping centres, where you can generate a higher rental income for years to come.
 
Talk to existing owners in the area
 
Don’t forget to speak to owners and tenants who are currently living in the area. They can provide important information regarding the property, which you wouldn’t find anywhere else.
 
Can you manage the property or will you hire someone else?
 
If you are too busy or currently living abroad, you may have a difficult time managing the rental property. It is important to determine whether you can manage the property accordingly. If not, you can hire someone else to be responsible for everything concerning the property. In this case, the rental income would decrease.
 
Potential risks
 
Don’t forget to take into consideration the fact that you may not find a suitable tenant in due time and that your property may sit empty between tenants, thus reducing your return on investment. Also consider any repair costs and legal fees should you need to evacuate a bad tenant who damages the property.

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What you should know before investing in rental property
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