FinanceReal Estate

Will That Rental Really Pay For Itself?

6 Mins read

There are a few different ways to make real estate work as an investment enterprise. If you want to keep things simple, you can buy properties and improve them for selling on. This is a business of its own and could see you finding significant success later down the line. If you have the money to make it work, it’s a path worth considering.

rental investment benefits

Shutterstock Licensed Photo – By robuart

Another option is to buy rental properties. This is a fantastic choice for those starting with less, and also ensures ongoing income. If you don’t want houses to be your primary enterprise, this could be for you. That way, you can keep your day job, and still reap the benefits of a monthly rental income. Few other sidelines will see you making as much.

That said, this is by no means a passive, or sure way to make money. Landlords have to play a fairly active role, and be available whenever tenants need them. On top of which, you still need to lay down a large sum of money to get started. And, there’s no surefire guarantee you’re going to make it back. In fact, it can take years of rental income before you start to see a profit.

The good news is, there are a few ways you can ensure your rental property pays for itself. And, by considering these during the buying process, you can rest easy that this is a sound investment. To help you get started, we’re going to look at a few of the things you may want to consider.

Is there a market?

When you’re buying rental properties, location takes on a whole new meaning. The chances are that, during your personal house searches, you consider areas which look good or have a community vibe. And, sure, that stuff is vital for rentals too. But, you also need to think about whether an area has a market before you buy.

For the most part, this stuff is common sense. A lovely country village may be ideal for a family home, but there’s unlikely to be much call for rental properties. You might get lucky, but the chances are slim. For the most part, people looking in such areas will be doing so to buy. In the city, however, you’re sure to do much better business. Many people in built-up areas prefer to rent in the short term. That’s especially the case if they have jobs which require regular moves. Equally, areas with colleges nearby are sure to see you through. There are always going to be students looking for places close by. Consider all this and more during your initial searches. If you aren’t sure about a location, you can always research the current market. Are there many rentals available? Head to companies like The Buyer’s Agent to gain an accurate idea of where you stand. By keeping an eye on things, you can even track roughly how long properties are on the market. If an apartment is up for rent for more than two months or so, it’s a sure sign that no one’s biting. Time to look elsewhere!

How much can you charge?

While you’re looking at the market, it’s also worth looking at rental prices in each area. Compare this with the cost of properties. Consider whether the investment is actually worth your while. There’s a distinct chance that, after the above step, this will be easy enough. After all, popular rental areas are sure to be more lucrative options than those without a market. You should certainly be able to see a difference in inner-city rental amounts and more obscure areas. But, then, property prices themselves fluctuate based on zip code. To ensure you don’t pay over the odds, make sure you consider everything, from location, proximity to amenities, and size. Small things, such as views from windows and the neighborhood in question, also come into play. If you think any of these will compromise your rental earnings, don’t be afraid to offer a price to reflect it. You might get lucky, or you might not. Either way, at least you won’t be out of pocket. Bear in mind, too, that in a desirable area, even a cheaper property could earn you big bucks. This is especially true in college towns, where rentals become a scarce commodity. If you’re desperate to make back your money and more, that could be a good way of going about it. Either way, you should take your time here. The better you know what other rentals are going for, the more chance you have of seeing a decent return.

The property itself

Of course, when it comes to making your money back, nothing is more important than the property itself. And, rest assured that purchasing a rental is incredibly different from buying for personal reasons. This is especially the case in areas of high demand. Potential tenants are unlikely to look out for ‘character’, or any of the other things we usually keep an eye on. Instead, you want a property which appeals to as many people as possible. All the better for ensuring you get a steady stream of renters. That means neutral colors, and spaces which would work for many. Open plan living has become big business in rentals for this reason. There’s less chance that people will turn against vast and open spaces. While it may not be the best for comfortable family living, it’s sure to appeal to a tenant who’s seen a load of cramped spaces beforehand. It also allows them to make the most of an otherwise small space. You can include dividers and so forth to ensure some degree of separation. For the most part, though, it’s worth keeping things as open as possible.

Think, too, about the condition of the property before you buy. If you have to spend a fortune replacing boilers and retiling the roof, it’s going to take longer to see your money back. After all, that’s all added expense to the overall price of the property. If you aren’t careful, you could be looking at a substantial sum more than you first thought. It would undo all the hard care you’ve taken until now. So, during viewings, be thorough with what you ask the estate agent. Don’t be afraid to look in cupboards, check electricals, and do a test run of the boiler. If you feel it necessary, you could even get professionals in to confirm your findings. All these steps could save you a lot of money in the long run. Bear in mind, too, that work doesn’t have to take the property off the cards. All you need to do is deduct that price from your total offer. That way, you can provide a newly furnished rental without having to pay any extra to do so.

Reliable tenants

Reliable tenants

Shutterstock Photos – By fizkes

After all that work, it’s time to talk tenants. After all, the people you let into your property will also determine its earning potential. In a way, renting your property out to people is a real leap of faith. It’s unlikely you’ll meet them more than two or three times before handing over the keys and letting them loose. You may ask them to sign contracts and pay a deposit, but there’s nothing to stop them trashing the place and running. You would eventually be able to take them to court for this, but it’ll cost you to do so.

With that in mind, it’s crucial you take your time finding reliable tenants. It’s the only real way to secure your investment and ensure timely rental payments. There are a few different ways you can put your mind at ease here. One is to embark on an interview process with all potential applicants. First impressions aren’t always reliable.  But, they’ll take you some way towards making the right choice. If anyone puts you on edge, you should strike them straight from the list. It’s also important to ask for references from previous landlords and employers. That way, you can gain an idea of how they would be as tenants. You can also ensure they’re able to meet your payment terms with no worry. If this is their first rental, you may need to make exceptions to the landlord references. After all, everyone has to start somewhere. In this instance, it could be worth asking for guarantors, or at least getting recommendations from reliable sources.

Even once your tenants are in and paying, it’s essential to keep on top of your property’s condition. All tenants will pay a deposit in case of breakages. Still, it’s possible even that wouldn’t stretch to significant repair work. Which is why you should visit at least every three months to ensure all is well. This also gives your tenants a chance to discuss any worries with you. Make sure to provide adequate notice of all visits, and do thorough checks while you’re on the property. Otherwise, you’ll pay for it down the line.

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Ryan Kh is a big data and analytic expert, marketing digital products on Amazon's Envato. He is not just passionate about latest buzz and tech stuff but in fact he's totally into it. Follow Ryan’s daily posts on Catalyst For Business.