6:40 PM, Apr 20, 2022
Ok, let’s be real for a minute or two – there’s a heck of a lot of mixed messages being thrown around about what it means to own a rental property. So today we want to dispel all of the myths and get down to business. There’s a few things you need to know before you dive in and buy your first rental property investment.
First things first, forget what you’ve seen on all of those property shows…TV doesn’t always paint an accurate picture of what it means to own an investment property. Don’t be drawn into the shows where people are making money left and right, flipping houses within a few months and snapping up turn-key trouble-free properties. Sure, these programs are engaging, but lets remember that they are in fact made for television – the amount of footage you don’t see is probably the stuff you really need to know. Real Estate investment is should be a long-term goal…it’s time-consuming, and can be a risky investment strategy IF you go into it with your blinders on.
On the upside, this type of investment can be lucrative for those who take the time to make the right purchasing decisions and who are willing to work hard and give their rental properties the time and attention they really need.
It’s A Marathon
…Not a sprint. To make money in real estate property investment, it’s absolutely essential to think about the long game. Skip get-rich quick schemes, as they don’t really exist anyway. If it sounds too good to be true, it usually is. Start with a solid property, give them the attention they deserve and plan to keep them forever giving you the benefit of time. With time, your equity will grow.
High-Quality Properties are Essential
We’ve already said it, but this point is so important we’re saying it twice. When you think about buying a property for investment you need to put yourself in renter’s shoes – what would you look for in a home? Start with a fresh, tidy, well-kept property in a good location. Look for investments near to good schools, with decent amenities, and low crime rates…you get the idea. Although every property will need a lick of paint and a spruce up every once in awhile, you should start with a solid foundation (pun intended). When you own high-quality properties you have the ability to be discerning about finding good tenants who have excellent credit. This combination will lead to much lower rates of vacancy, increasing your wealth as an investment owner. Smart, right?
Cash-Flow Positive, duh.
There’s no point in owning an investment property if you have to pay out of pocket for it every month. To make money in rental property, you should invest in a property that allows you to bank money every month. It seems like it should be simple enough, but its not as easy as it sounds to find a property that you can be assured will give you a return on your investment. Before you purchase, do the math. Determine how much rent you can get for the property, subtract the mortgage and monthly expenses, what’s left is how much you will be banking each month.
Use the 1 per cent rule to determine if you’re onto something good. The 1 per cent tool is a simple analysis to determine whether you’ve got a potentially lucrative property. All you need to do is take a conservative estimate of the monthly income and divide it by the purchase price of the house to determine how close you are to 1 per cent. For example:
Good: You can get $1,600 per month in rent, and you paid $200,000. Your rent is 0.8 per cent of the purchase price…in other words, it’s a good deal.
Bad: You can get $1,600 per month in rent for a property you paid $400,000 for. You are collecting rent that is 0.4 per cent of the purchase price, not such a good deal.
Do your homework.
Last but not least, go into your purchase with eyes open and get the facts before you buy. Talk to other investors in the area, read the paper, shop around, do the math and make a long-term plan. Do the hard work before you jump in with both feet and you’ll set yourself up for a good return on your investment, heck you might even have yourself a nice little retirement plan.