Interested in stability? How about tax benefits, passive income, appreciation? Does this sound fabulous? Investment properties can be a great way to pad your way to retirement. Not all rental properties are the same. To get the best bang for your buck, there are FIVE key steps to follow.
Location! Location! Location! – Location determines the quality of tenant, how much rent you can collect, and the vacancy rate. Safety of the neighborhood, crime rate etc can determine whether you have steady tenants or the revolving door.
The numbers matter. Try to take the emotion out of the deal. Look at all costs (not just mortgage), taxes, maintenance, professional services (property management, accountants) etc. The 1% rule is easy to follow. Essentially however much you spend, get back 1% a month in rent. For example, pay $125,000 (including closing costs etc) for a property. Spend $25,000 in fixing the property. Ideally the rent should be $1500. There are always exceptions to the rule, but this is an amazingly simple way to see whether a property is worth the investment.
Maintenance – are you looking at a boarding house, an Airbnb or long-term tenants. The costs need to be factored for either. Normal wear and tear, licenses, inspections…all need to be clear.
Appreciation- purchase price versus sold price. Cosmetic touches can elevate the rent which in fact gives appreciation. Increasing the rent every year also brings appreciation. Is the house a flip or a stable investment?
Practical as in normal. You want a property that is in decent shape, in a good location, bedrooms and bathrooms. Stick with the basics. It would be hard to rent that shack that has one bedroom and the outhouse.
Real Estate is a solid investment. With the right tools and partners, getting an investment property can be the key to a profitable future for years to come.
Elisha Heebner is the Assistant Director of Rental Services and property manager of Del Val Realty and Property Management. Elisha specializes in property management as many homeowners today need a competent, caring person to handle these affairs for them. Professionally, it is her duty to provide services to her clients with integrity, competence, and confidentiality.