Rental properties can make for a very lucrative investment. However, there are quite a few things you should know about if you want to be successful. Rental properties in particular are still overlooked by many investors, even though they can bring in an excellent return.
Try to see rental properties like a stock market. Although most of us aren’t stock brokers, we do tend to have an understanding of the system, and we know that we have to spend money to make money. However, whether or not stocks will perform well simply cannot be determined properly. The same is true for retirement calculators, who simply “guess” when we will die. As a result, we may end up broke if we live slightly longer than expected.
Investing in real estate, therefore, shouldn’t be about the appreciation, but rather about the cash flow. Calculating your cash flow means you need to work out how much money from your rental is left after you have paid for all the necessary expenses. If you can, try to leave your cash flow alone in a bank account to create significant savings. Additionally, as your rent goes up over time, so will your cash flow. If your mortgage payments stay the same, then your cash flow will be even better. The best cash flow is at least 20% of your overall income from the property. There are some great online resources in terms of calculating your cash flow.
If you don’t have a lot of money to put down, you will find that it is easier to invest in rental properties if you are younger. Banks will generally want at least a 20% deposit before giving you a mortgage. 20% can equate to a lot of money, particularly if you will also need to do repairs. However, those who are younger can often get better deals on mortgages, as they have longer to pay them back. There is a lot more to real estate investing than this. Finding the property is an entire enterprise on its own. Finding a property involves a whole lot of research and analysis as well. You also need to spend some time looking for a realtor that can represent your interest. They will help you to find the best properties for your needs. You will then need to look into what it means to be a good landlord, something that will take a considerable amount of time to learn. Don’t let this put you off, however.