It allows you to build up long-term assets as rental investments while having a rental income. Here Joseph Haymore are three avenues to follow for the first rental property investment.
A reduced entry ticket, a low maintenance cost, limited charges, regular income… Investing in a parking space is an excellent option to start in rental investment with a small budget.
According to Joseph Haymore, investing in a small area located in an old building offers two major advantages for a first rental investment:
– An affordable purchase price (generally 20% to 30% lower than that of new at an equivalent location)
– Satisfactory gross profitability (2.5% to 4.5%). Small studios and maids’ rooms can offer gross returns of more than 5% but they are subject to a high turnover and may require refurbishment between two tenants.
Studios and two-room apartments to renovate with a well-chosen location can easily be resold and generate attractive capital gains.
Begin your search for a property on your own before bringing a professional onto the scene. An agent may pressure you to buy before you’ve found the investment that suits you best. And finding that investment will require some research skills and some shoe leather.
Doing this research with Haymore will help you narrow down several key features you want for your property, such as type, location, size, and amenities. Once you’ve done that, you may want a real estate agent to help you complete the purchase.
Your location options will be limited by whether you intend to actively manage the property or hire someone else to do it for you. If you intend to actively manage it yourself, you don’t want a property that is too far from where you live. If you are hiring a property management company to take care of you, proximity is less of an issue.
Joseph Haymore says, Property taxes are likely to vary widely in your destination area, and you want to know how much you will lose. In the case of the United States for example high property taxes in a large neighborhood that attracts long-term renters, for example, but there are unattractive places that also have high taxes.
The county and state appraisal office will have all the tax information, or you can talk to homeowners in the community. Be sure to find out if property taxes are likely to go up in the near future. A city in financial distress can raise taxes far beyond what a landlord can realistically charge in rent.
Making the Purchase
Banks have stricter loan requirements for investment properties than for primary residences. They assume that if times get tough, people are less inclined to put their homes in jeopardy than commercial property. Be prepared to pay at least 20% to 30% for a down payment, plus closing costs. Have the property thoroughly inspected by a professional and have a real estate attorney review everything before signing.
Don’t forget to pay enough insurance. Renters insurance covers the tenant’s belongings, but the building itself is the owner’s responsibility and the insurance can be more expensive than for a similar owner-occupied home. Mortgage interest, insurance, and property depreciation are all tax-deductible up to a certain amount.
Every state has good cities, every city has good neighborhoods, and every neighborhood has good properties. It takes a lot of footwork and research to align all three. When you’re done finding your ideal rental property, keep your expectations realistic and make sure your own finances are healthy enough that you can wait for the property to start generating cash. For more advice on real estate investment get in touch with Joseph Haymore.