Despite its risk, investing in rental property can be an exciting experience that can increase your income, and provide you with a high degree of satisfaction. However, being a landlord is sometimes not all that it is made out to be, and there are a number of important considerations that you should make prior to committing to any investment. Before you can even begin to undertake such a venture, you will need to find out if your credit score is sufficient to enable you to qualify for a second mortgage, or a new loan – it will often take an excellent score to even get started. You will also need to demonstrate that you have a satisfactory debt to income ratio before your bank will decide that your funds warrant the loan.
After that, you will need to consider what kind of property you want to buy, since there are so many options available. You can invest in single family homes, duplexes, apartment complexes, commercial real estate, and other types of properties, depending upon your appetite for risk, and how aggressively you want to invest. For these decisions, it is often helpful to engage a real estate agent who can guide you toward many of the best opportunities, and advise you as to the market value of the area. In order to make a profit from a rental property, you need your property’s market value to be at or below that of the surrounding properties.
Many investors do not make a huge profit with their first investment – but having a goal of recouping the mortgage costs and management fees will still enable you to build equity in the property. That equity will prove valuable as you need to secure more capital for additional investments later. But for now, you need to run all of the numbers to determine all of your costs – mortgage, insurance, management costs, and upgrades – and then determine whether the amount you can charge will enable you to be profitable. Also consider how long the property can sit idle without being rented, as well as what level of loss you are positioned to sustain in the event of a deadbeat renter. Having a manager for your rental property can help you to focus on these issues rather than worrying about every issue with the property itself.