When looking at a property for rental investment, you have to pick and choose carefully to get the best value out of it. To aid you in your search for a profitable property, you must study the type and location of the properties you wish to buy carefully and calculate whether they will actually net you a profit in rent.
Visit similar properties that are for rent and take note of their state of repair, number and kind of amenities and the price asked for rent. Then keep tabs on how long they are on the market for. If a property takes several months to get rented, the rent is too high. If a property rents in days or weeks, the price is likely a bit low. Since you don’t want a long vacancy, it is wise to go for a rent that is moderate. For argument’s sake, say the median rent for your single-family home is $1000.
Out of this $1000, you will need to pay the mortgage, the taxes, the insurance, the maintenance and the repairs for your property. You are going to have to set some money aside to cover large repairs and maintenance. You are also going to have to put money aside for vacancies. The expenses must still be paid, even if there isn’t a renter living in your home. Despite stringent screening, you may have to deal with renters who abuse the home or refuse to pay rent. These are risks you must prepare for financially.
You need to buy a home for a price that will give you some breathing room between the expenses and the profit. If a home is nice in every way, but is priced too high and the owner won’t go lower, do not buy it; the extra few hundred dollars a month in mortgage will eat your profits. If the home is not available for a reasonable price, go elsewhere.
Even if your property is netting you $12000 a year, you may not be able to make more than $50-100 a month in pure profit. This is where you have to be smart about rentals. Just because you are not pocketing more than a tenth of your income from the home, you are building equity in a resource that you can rent out over time for more money, while still paying the same amount in a mortgage.
Being a landlord is a business with many challenges, but it has its rewards in an ever-appreciating asset that is making you money and increasing in value, year by year.
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