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Factors to Consider While Investing in Rental Property

  • 05/23/2022

Looking for suitable avenues to double your earnings and income? Why not invest in buying a rental property? Everyone is familiar with the lucrative nature of the property business and how much profits it can bring to them. 

Probably, that's why the majority of people have been investing in the property business so far. But ever wondered how to invest in rental property? No doubt investing in rental property is profitable but only if you do it the right way. 

There are numerous factors to take note of before you proceed with investing in the property business. Let's have an insight into all those factors to make room for your maximum earnings. 

Factors Guiding you to make an Investment 

Usually, some of the crucial things to consider before proceeding ahead with the investment are the evaluation of expected income, returns, expenses, rewards, and much more. In addition to this, keeping an eye on the risks is also crucial. 

Let us have a sneak peek into all the factors that’ll guide you towards investing in the rental property. 

Evaluation of rental income 

There’s no point in investing in a rental property if it fails to generate sufficient income. So, the very first thing you should emphasize while investing in the rental property is the evaluation of rental income. 

After all, the primary reason for investing in rental property is to generate handsome income only. The best way to do a thorough analysis is using the 1% rule. By this, we mean that the property should generate an income of at least 1% of the initial price of the property so that additional expenses get covered easily. 

But this is not the only thing guiding the purchase as sometimes even without this, you’ll be able to meet your financial goals easily. 

Expenses of owning the property 

How much expenses will be there post owning the property is also a good starting point to invest. Usually, the expenses will be 50% of your total income generated from the property. 

As such, the expenses are of two kinds: operational and capital expenses. Operational expenses are usually property taxes, maintenance, repair, and others. Capital expenses are unplanned expenses. 

Consequently, the best thing is to figure out the expenses before investing the money into the property. 

Expected returns from property

Calculating the returns and profits from the property will also dictate whether you should invest in buying certain property or not. As such, there is no exact formula to calculate the returns but if you can make 10-12% profits, then consider the property to be lucrative. 

The best alternative to figure out this is to get a renowned property management software for yourself and decide accordingly. Tenantden’s property management platform is advanced featured software that can give you a complete overview of the property before you invest your money into it. 

Know the rental law 

Ignoring the rental law can pose a great risk to the property owners. Consequently, before investing in buying the property, all the property owners should make out time to understand the rental law thoroughly and then proceed with it.

The easiest way to do this is to have a separate account for each tenant and keep the money safe there. In addition to this, there is a lot of bookkeeping involved in the property business. 

Benefits vs risks 

Doing a thorough analysis of benefits and risks will make your vision clear concerning the property. Some of the benefits of buying rental property include handsome income, an increase in value, the advantage of diversification, and many more to go. 

But along with the benefits, there are also certain risks associated with the properties. The most common risks with most of the properties are getting a bad tenant, risk of being damaged, property lying vacant, and a decrease in value. 

Consequently, do the comparison of both the benefits and risks and then invest your money in buying the rental property. 

Final Thoughts 

No doubt rental property brings in a sufficient amount of income but before buying the same, you must know what you are buying. The above-mentioned factors will help you in deciding about the investments in the rental property. Get the advanced property management solution from Tenantden and be at ease.