Buying a property for investment is more than just a decision to become a landlord; it is a business decision and any investment purchase should be viewed and dealt with as business. Providing a house to rent involves focusing on generating a profit whilst keeping a customer satisfied – this is the same as any business. Any property can be a good investment option provided you utilize the following guidelines:
Choose your investment option
You must decide, before you purchase a property, which market you will be targeting:
- Senior and disabled people are now a significant percentage of the population. Catering for this market means purchasing a property near amenities and may need modifying to suit their personal needs. Tenants tend to be long term.
- Students often choose to be housed off campus and this is particularly true for the increasing numbers of mature students who also have a family to support. Houses must be of reasonable quality and near to the campus
- Military housing must be near the military base and easy to move in and out of. It is likely that these will require a full maintenance package.
- Rehabilitation and re-entry into society accommodation needs to provide a base for those who are attempting to re-engage with normal society. This accommodation needs to offer privacy and security.
Pay more attention to affordability
It is essential to calculate what the average rent you will be able to collect will be. This can be established by finding out the average wage for the area you are looking to purchase in and calculating 30% of this. The average wage can also be used to estimate your buying price – simply take 35% of the average wage.
Profitability
You will need to evaluate your operating expenses. There will be taxes and insurances due on any property, tenants will usually pay for the utilities but if this will be included you need to estimate the cost of this. There will also be purchasing costs and fees for setting up each tenant. You may also need to factor in either the cost of a property management agency or your own marketing to attract potential renters.
You will need to remove your total estimated costs from the expected income, which was previously calculated. This will provide a gross profit figure which will need to be adjusted for tax.
Marketability
A simple and perhaps the most effective way to start in property investment will be by locating properties which will come under the local guidelines for rent subsidies. This will almost guarantee rentals. If this is not an option make sure you purchase a property which fits into the investment options discussed above. The less work which is required to a property the better – you do not want to be spending your first years profit on repairs! There are several other options which can be beneficial to investigate before purchasing your first property:
- Foreclosed homes will often arrive on the market at a lower price than their actual worth; this can make them an attractive prospect.
- Become friendly with a few of the realtor’s in your chosen area. Not only will they be able to give you an early alert of properties coming onto the market but they will also know about the local properties which are for sale by their owners. Many of these may need quick sales and this can work in your favor.
- Know the legal requirements in respect of renting and maintaining a property in your chosen area.
Develop an action plan
Before even looking at potential properties it is essential to develop an action plan. This should involve learning about the property market in your chosen area and locating any niches which you will be able to fill. Draw up a business plan and stick to it, investment property is not a place for whims, it should always be treated as a business.
Finally always treat your tenants as people, build a relationship with them and be fair at all times. This will ensure your tenants stay with you for the long term and save you many headaches.
By Charles Goodwin and PropertyTurkey.com!