Investing in rental investment is an opportunity to diversify your investments. It allows you to build wealth thanks to the constant wealth it generates. It’s often perceived as a safe investment. Nevertheless, be careful not to jump on the first property for sale. Here are the elements to consider to make a good real estate investment.
Look at your investment capacity
Make sure you have the nerves to become the king of the rental ecosystem, as you will sometimes regret your investment. Investing in real estate and owning a portfolio of rental properties may be your dream. Enjoying a constant cash flow may be part of your ambitions, but it is also a gamble that sometimes requires a lot of commitment.
Many people turn to rental property investment thinking that it is a passive investment, but like many investments, he requires a minimum of activity.
To make succesful actions, you will requires good communication skills and flexibility. However, if you don’t think you have these qualities or the time to take care of your properties, you can use a manager or a management company.
It is also important to remember that it is almost impossible to become rich through real estate without having a minimum amount of money or a good borrowing capacity. You must therefore evaluate your investment capacity before launching yourself. Only this preliminary evaluation will allow you to define the budget that you will be able to allocate to the investment project.
The Location is key
One of the most important things to consider when deciding to invest in real estate is the geographic location of your potential property. The goal is to ensure that you will have tenants fairly quickly, that they will want to settle down permanently and that they will not have rent problems. To do this, you need to take an unbiased approach to the properties and neighborhoods you will be evaluating, and look at them from the perspective of your potential tenants. There are several things to consider:
Be careful with natural (hidden) disasters.
This is something that prospective tenants consider before they move in, and you should do the same. The objective is to see if it will be necessary to subscribe to an insurance complementary to that of the tenant. Indeed, the home insurance (rental risks) to which the tenant subscribes does not cover damages such as natural disasters, storms, water damage… Acquiring a dwelling in a place exposed to these damages obliges you to subscribe to a non-occupying owner’s insurance, for example, which partly reduces your rental income.
On the other hand, you should know that some people are reluctant to settle in a risk area.
The quality of the neighborhood
The quality of the neighbourhood in which you invest will influence both the types of tenants you attract, as well as the frequency with which you experience periods of vacancy. For example, if you buy in a neighborhood near a university, chances are your potential tenants will be primarily students, and you will regularly experience vacancies in the summer.
Your tenants may have or plan to have children, so they’ll need a location near a decent school. If you have found a good property near a school, you should check the reputation of the school first, as this can affect the value of your investment. If the school has a bad reputation, the prices will not reflect the value of your property.
The job market and services
Find out about the level and prospects of employment in different areas. Places with growing employment opportunities tend to attract more people, and therefore more renters. Also check out the potential neighborhood: current or planned parks, shopping centers or any other amenities that attract tenants.
Rents will be the primary return on your rental property investment, so you need to know what the average rent is in the area. If this is not enough to cover your various costs, you need to keep looking!
Clearly define the type of rental property you want to buy
If you intend to invest in rental property, you need to understand the specifics of this investment and clearly define the type of property you want to purchase. This choice depends on your initial objectives, but also on the opportunities presented by each type of investment.
Commercial real estate investments
You may decide to invest in the construction or acquisition of a building with individual offices, which you can rent to small business owners, who will pay rent to use the space. The advantage is that it is not uncommon for commercial real estate to involve multi-year leases. This can lead to greater cash flow stability and even protect you from rent deflations, but it can also deprive you of capital gains when rents increase significantly over a short period of time.
Industrial Real Estate Investments
Industrial warehouses for rent to businesses gives you
The tax advantages
Like any investment, the rental investment must have a good prospect of profitability for you to commit to it. You must take into account your return on investment by calculating the rental yield. Determine the profitability with the formula: total annual rents on the sum of the purchase price of the real estate, the notary fees and the loan interests.