Real estate is a perennial favorite for investors looking to make some passive income in a long-term investment. It isn’t without risk, but it remains attractive for its lucrative financial rewards.
If you’re thinking about entering the rental market, these are the three things new investors must do before purchasing an income property.
Make Sure It’s Worth It
Real estate CEO Aubrey Ferrao recommends investors get to know the market they’ll be entering, both from the real estate and rental market perspectives. Buyers may be inclined to pay a higher price for property that looks nice and has high-end finishes because it seems universally appealing and is on par with other homes in the area. However, that market may not support the higher rents required to break even.
Make Sure You Can Afford It
New investors can get into the trap of simply comparing monthly mortgage payments with the amount of rent typically collected and assume they can afford to purchase an income property. However, Aubrey Ferrao tells potential investors to honestly examine their financial obligations and existing income to determine if they’re actually able to weather the market downturns and unexpected expenses that come with being a landlord. There will be home repairs, evictions, and sometimes months where there will be no tenant and therefore no income, so investors need to have enough financial cushion to handle it.
Find the Right Professionals
When it comes time to purchase their first investment property, finding a realtor who knows the area well and can point investors toward desirable neighborhoods and or even up-and-coming is a must. Equally as important is finding a competent accountant to help the investor understand the new tax benefits, burdens, and even how to structure the purchase.
Purchasing rental properties can be a great money-making tool and is a desirable addition to many investment portfolios. However, as with any investment, the proper knowledge and preparation are key to its success.