Real estate is known as a good investment by many, but are you ready for it? Do you want to own an income property, but you’re not sure if it’s the right move?
Before you invest your hard-earned money in real estate, it’s important to know what you’re getting into. Here are some things to consider before owning an investment property.
4 Things to Consider Before Buying an Investment Property
1. Are you Comfortable Being a Landlord?
Depending on the type of landlord you plan to be, you might need to know how to make some repairs. It could also be helpful to understand landlord-tenant laws in your area.
Before you decide to own an investment property, you need to be sure you’re comfortable being a landlord. Of course, you can hire a property management company or invest in a build-to-rent project to make it more comfortable for you.
2. Do you Have Enough Money to Invest?
There are multiple ways to go about buying an investment property. You will likely need enough money for the down payment and a healthy emergency fund. Before you decide you want to own an investment property, make sure you’re financial house is in order.
Yes, rental properties bring in regular cash flow, but you still need to be prepared. You’ll likely have a mortgage payment, homeowner’s insurance, taxes, and maintenance to cover. A good emergency fund goes a long way when you become a landlord.
3. Can you Handle Vacancies?
Another thing to consider before you decide to own an investment property is the possibility of vacancies. When you invest in a rental property, you could have one tenant move out and struggle to find a new tenant.
Vacancies may kill your profits. If you have a good emergency fund, you’ll be able to sustain during times of vacancies. It can also be helpful to hire the right property management team to ensure you always have a tenant in your income property.
4. Do You Know the Numbers?
When considering buying an income property, you want to know the numbers. It’s important to use the right calculation and consider all the possible costs before going all-in.
You want to start with the annual gross rental income and adjust about 10% for potential vacancies. This will give you an effective gross income, which is a good starting point.
Once you have the EGI, you can subtract taxes, insurance, maintenance, management, and any other expenses. This will give you the net operating income for the year.
Make sure you run the numbers before you buy an income property. If the numbers don’t look good, you may want to find a different property.
There are several questions to ask before you will know if you’re ready to buy an income property. It’s important to make sure you’re financially ready and mentally ready to become a landlord. If you’re ready, an income property can be a great thing. If not, it can be a disaster.