Should You Invest in Rental Property?

Many people look for ways to generate passive income. The passive income they earn allows them to travel, without worrying about funding their long-term trip. One way to earn passive income is to invest in rental property. The property does not have to be fancy. It can be as simple as a studio flat or if you have extra money, a multiple-bedroom flat. 

However, there are a few things you should know before investing in rental property.

You have to make a few smart decisions based on certain factors to make money out of your rental property. Factors such as location, appearance, costs, renovations, profit margin, repairs and your ability as a landlord can either make a rental property worth it or not.

Location is Important

The location of your rental property is one of the biggest factors that may determine its income potential. Its proximity to schools, the business and financial centre, tourist attractions, restaurants, bars and entertainment will attract the type of tenant you want. Properties in good locations have high earning potential. However, these also come with a high price tag. Estimate the property’s affordability to determine, if you have enough resources to make the investment. The flat might be in a perfect location, but it may be out of your reach financially.

Give the Flat a Facelift 

Some flats have basic designs that do not make a convincing argument as a rental property. In such cases, you might have to do some renovating to increase its appeal to a potential tenant. You can buy more furniture to give the place a distinct look. You also have the option to renovate to give the space a different and modern look. You might also have to upgrade the bathroom, kitchen, heating, insulation, air conditioning and others to increase the flat’s value in the eyes of potential tenants. If the rental property is small, you can make it look bigger with some improvements. Estimate your loan to determine monthly payments not just for purchasing the property, but also for the improvements you need to make.

You as a Landlord

You may have the resources to invest in rental property; however, you still need to manage it so that it becomes profitable. As a landlord you have responsibilities to maintain the property, solve problems, make repairs, deal with possible late payments, mood swings of a tenant, and all the other little things you might encounter. If you’re travelling for a long time, you need to have an open line of communication with your tenant. You have to speak to them about problems they might have with the property. You must establish payment terms and where they will send it. Consider designating some of your responsibilities to a person you trust. However, you might have to pay them for their services. Manage your budget and mortgage to strike a balance between expenses for services and property maintenance and generating a profit.

Plan for Unexpected Costs

You will never know when an expense may arise. This can be a damaged bathroom fixture, water damage, fluctuating electricity or other problems that need immediate fixing. You will have to include these possible costs in your budget. These additional expenses will eat into your profit. Plan your budget in a way that gives you a buffer. This provides you with some financial flexibility to address unexpected costs.

Income Potential

Review the profitability of the rental property you are planning to invest in. Calculate the rent you will ask from a tenant. The price should cover the expenses of the property and room for profit. Factor in the length of the contract when you project your potential income. Some tenants might only want a short-term lease instead of a long-term one. Once a contract ends you might have to advertise the place again for a new tenant.

These are some of the things you need to consider before investing in a rental property. Rental property provides you with passive income that you can use to supplement your other sources of income. These allow you to sustain a long-term trip. You do not have to worry about where money will come from while you enjoy travelling.