6 Factors To Consider When Investing In Rental Properties

According to data collected by the IRS, around 7% of US citizens are landlords, whether to tenants or family members.

If you have liquid assets, investing them in a rental property is a great way to earn a consistent income.

Why else should you invest in a rental property? What are the top things to consider when browsing for rental properties? Keep reading as we give you some food for thought to begin your landlord journey.

Why Invest In A Rental Property?

If you’re considering investing in a rental property, there are a few benefits to consider for both the short and long term. Here’s why it’s worth placing time and effort into selecting a rental property and marketing it to tenants:

  • Stable cash flow: If you have large sums of money sitting in investment accounts, you might consider purchasing a rental property. The interest you gain on your investments may not be stable, but fixed rent payments are. And, so long as the property value doesn’t diminish, you will keep your initial investment and even make a profit.
  • Tax benefits: Being a landlord comes with many benefits, such as being able to write off the interest on your mortgage loan. You can also deduct a portion of the property’s cost from your income tax each year.
  • Diversification: Keeping all of your money in one investment is not advisable, as markets can change. By investing in property, you can protect a fraction of your money if market conditions change drastically, affecting your investments.

For the above reasons, becoming a landlord can be highly beneficial for your financial stability and investment health. But what do you need to consider before beginning the property search?

6 Things To Consider Before Purchasing A Rental Property

Here are some useful things to consider when browsing for a rental property.

Timing

The real estate market fluctuates constantly. You need to know whether it’s a buyers’ or sellers’ market when you make a purchase. During a recession, it is wise to invest in affordable properties rather than luxury ones, as there is a stronger guarantee of tenancy.

Location

Scope out the location carefully before purchasing a property. Look at development plans in the area and consider whether these developments will enhance or detriment the quality of life in the area.

For instance, a retail park development would improve amenities and accessibility in an area, while a school campus development could cause increased congestion and become a red flag for potential clients.

Security

Home security is one of the top things tenants consider when evaluating rental properties, so it should be at the top of your mind, too. You must research the crime rates in an area before purchasing property to ensure the area is suitable for most prospective tenants. Additionally, you should research home security technologies and installers in your area, focusing on the following installations:

  • Access control: Traditional key and lock systems leave room for lockpicking and place your tenants’ safety at risk. Instead, consider switching to an access control system that uses keycards, fobs, and mobile credentials instead of keys. This is a particularly important consideration for multi-family properties, ensuring tenants only need one key to enter the building and their residence.
  • Surveillance: Security cameras both deter and document crimes on your property. You can assure your tenants of their safety while also documenting evidence that could help with insurance claims in the future should any property damage occur.
  • Alarms: You are legally required to provide smoke and carbon monoxide alarms to comply with landlord regulations. You might also consider installing broken glass and intrusion alarms to assure tenant safety.

By installing these security measures, you can make management of the property smoother and reduce your liability should any property damage or emergency occur at the property.

Property Management

When investing in property for rental, you can either manage the property yourself or outsource it to a third party.

If you’re already overscheduled, property management from a third party will require little to no intervention, allowing you to reap the rewards of being a landlord without sacrificing time and energy. If you decide to manage the property yourself, property management software can be extremely useful, providing a single platform for managing payments, maintenance requests, and tenant communications.

Accounting

As we mentioned earlier, you receive a few tax benefits by investing in rental properties. But you also need to keep your books up-to-date to ensure you’re prepared for the end of the tax year. Investing in accounting software can make it easier to manage your own books, or you might consider delegating the task to a professional accountant to reduce your workload.

Summary

Becoming a landlord helps you diversify your assets, provides consistent income, and doesn’t need to take up too much of your time. By carefully considering the location and timing of the investment, you can avoid extended vacancy periods. And, by establishing security and property management plans, you can have more direction when establishing your management system.

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