Making Money In The Rental Market
Becoming a rental property owner as a way to make money can be an expensive, capital-intensive investment. Traditionally to get into the rental market you need to secure a mortgage or have the cash to purchase your rental property. Whether the property makes you money once you own it comes down to doing your homework ahead of time. When you follow the fundamentals of investing in the rental market, like a well-oiled machine it becomes a model you can reproduce over and over to build wealth.
Purchase Price vs Cashflow
This is an important calculation especially if you’re using the bank’s money instead of your own. When you’re able to pick up a property for a bargain w/out having to invest too much to make it rent ready, the rent received is usually enough to cover your liabilities of debt payments, taxes, insurance and operating costs like property management fees or maintenance. You need to know ahead of time whether you are getting a good deal and not buy because you’re in love with it. The numbers have to pencil as they say. So looking for homes with low prices, such as foreclosures or short-sale homes, for the area which have potential to bring in high rents is the key to cash flow with your rental. Also good to remember is while property value appreciation is nice, it is not a given and can only be realized by selling the property.
It is key to research the potential expected annual expenses associated with your potential property. Consulting with your real estate agent about property taxes, irrigation fees, homeowners association dues, insurance, regular maintenance as well as researching property management fees are all important factors to consider. Remember that property taxes and insurance seldom decline and can even skyrocket when a real estate market rebounds. A good rule of thumb on rental net income is 8% or higher after property taxes etc.
The Well Oiled Rental Property Machine
How well tenants pay their rent on time and take care of your property is usually a function of how well they’ve been screened before signing the lease and how well you take care of them after that. When they know the owner or property manager is nearby and attentive to the property and their needs, things seem to go smoother with less wear and tear or property damage. This becomes all too important when the tenant moves out and you’re looking for a smooth and short turn around time before it’s rented again. Repairs are costly and take time. Every day that it’s not rented due to repairs chips away at your positive cash flow. If you live out of state, strongly consider a reputable property manager to handle these needs. So remember, making money in the rental market can be simple when you do your research and the numbers pencil for positive cash flow.