Welcome back to the second half of our two-part series on what to consider when you’re looking for your very first investment property. Buying an extra home is a big decision, and one you want to make carefully. Last time we talked about being financially prepared and choosing a structurally sound home that can be rented quickly after you purchase it. Let’s continue by talking about how to ensure your choice attracts the right sort of renter.
5. Is the Home In a Desirable Neighborhood?
There is a major housing crunch in Australia but that doesn’t mean that just any home will find a renter immediately. Most renters prefer to live in the city but wherever your investment property is, it’s important that the home be in a desirable location. In a nice neighborhood, near a school, or within walking distance of appealing shops and public locations are all great selling points but each neighborhood will have specific considerations to think about.
6. Who Will Want to Live in the Home?
The style and location of the home you choose will influence the kind of tenant you bring in. If you buy a first-floor flat on the quieter edge of a city, you’re more likely to see downsizing aged tenants while a three bedroom house with a yard will be more appealing to parents with children and a trendy loft near a college or shopping center will probably draw a younger crowd. Consider who you will enjoy renting to when choosing your property.
7. Landlord or Property Manager?
One of the biggest questions to ask yourself is whether or not you will be the acting landlord. The answer is almost more of a checklist, though the final decision is always yours to make. If you live near the investment property, are great at performing repairs, and have time to respond to renter problems when they arise, you could have some of fun serving as a landlord for a few years. However, the investment property is far away, you’re not great at repairs, or you don’t have time to deal with renters, hiring a property manager instead often pays for itself in saved fees, regular maintenance, well-managed tenants.
8. What is Your Maintenance Schedule and Costs?
Every home has a maintenance schedule and a number of things that need to be kept up every year in order to keep the home in top condition. Flushing the water heater, inspecting the roof, clearing the gutters, and so on are all officially your responsibility. Make a maintenance calendar with reminders and calculate the approximate costs of each maintenance task or talk to your property manager about their maintenance policies so you know that everything will be taken care of.
9. What is Your Estimated Overhead and Profit Margin?
Now balance the income of a reasonable rent for the property against the costs of the mortgage, regular maintenance, a repairs budget, and possibly a property manager’s salary. This will tell you what your overhead is (all the costs) and your final profit margin, which is what’s left when you subtract all the costs from the rent. If there’s not a lot left, don’t sweat it. You’ll find better quotes and get more efficient over time. Then, when the mortgage is paid off, that entire chunk of costs automatically transfers to profits for a great retirement plan.
10. Are You Prepared for the Responsibility?
Owning an investment property and renting to tenants is, admittedly, a big responsibility. You’re in charge of keeping someone else’s home safe, supportive, and protective. You need to respond if your tenants call for help or repairs and be ready to act immediately if the home somehow becomes unsafe. Not to mention your responsibility to properly maintain your own financial investments. If all of this still sounds wonderful and exciting, then you are in the right mindset to find your first investment property.
For more great tips and tricks on how to be a great investment property owner, contact us today!