Are you interested in achieving financial freedom? Investing in real estate is one option. But buying rental properties isn’t a get-rich-quick scheme. And while the passive income potential can be enticing, it won’t feel “passive” if you have tenants who aren’t paying on time or at all.
According to one source, the number of homes sold last year was up more than 6% to 6.9 million compared to what was sold the previous year. Do you want to dip your toes in the proverbial water and learn more, or jump in wholeheartedly to start your investment property journey?
What follows is a look at five things to mull over before investing in rental properties.
1. Can You Afford It?
It’s all good and well if you want to invest in real estate. But before looking for prospective rental properties, you need to consider if you can afford a property. If you have a ton of credit card debt, are still paying back student loans, or have other financial obligations, it might be better to hold off on investing in real estate.
You don’t have to buy investment properties straight away. And it’ll be best if you clear up any high-interest debt before taking on hundreds of thousands of mortgage debt. You can focus on other investment options until you’re financially prepared to buy rental properties.
2. How Much Can You Afford?
You also need to consider how much you can afford to spend. A budget is essential. It needs to include the cost of the property, repairs and maintenance, property taxes, and other things. When you nail down a realistic budget, you’ll be able to focus on getting the right investment property.
Spending less than you can afford will often be worth your while. That way, you’ll have greater financial flexibility to handle any surprises that may rear their ugly heads down the road.
3. Where Do You Want to Buy a Property?
Are you interested in specific areas? Home prices can vary wildly depending on the part of the state the homes are located in. So, focus on areas with good properties available at attractive prices. If the goal is to rent out units or houses, you’ll want to choose locations that are popular among renters. Location is a key consideration to factor into the equation.
4. What’s the Return on Investment?
When buying an investment property, you’ll need to consider the return on investment. Do you want to hold onto the property for a few years, decades, or forever? Whatever your investment time frame, you’ll want to determine what sort of ROI you can expect. Otherwise, you won’t have a way to figure out the performance of your investment.
5. How Will You Take Care of It?
Another important matter is who will take care of your investment property from day to day. Managing a property means arranging for repairs and maintenance, dealing with tenants, advertising vacancies, vetting would-be tenants, collecting rent, following up with tenants who are late with rent, and much more.
Do you have the time or the interest for the day-to-day affairs? If you don’t, one option is to hire a property manager. You’ll still be in charge as the owner, but a reputable property manager can handle the day-to-day management duties on your behalf.
These are just a few things you need to consider if the goal is to buy investment real estate. It’s a great way to build financial wealth, but you’ll want to think long and hard before taking the plunge. Sometimes it’s best to wait, and other times there may be better investment options for you to consider. But if you decide to invest in real estate, consider the points above beforehand.