Things to Consider When Buying a Rental Property

Investing in property is a smart financial decision that can help you grow wealth and generate a passive income. But just like all investments, property investment can be risky too, which is why it’s so important to do detailed research before diving in. Whether you’re just starting out investing in property or adding to an already significant property portfolio, here are some things to look for when buying an investment property.

Potential Rental Yield
The income from weekly rent payments will be your bread-and-butter, so first and foremost, you’ll want to determine that the potential rental income is going to be sufficient to cover your expenses, and ultimately generate a profit.

Start by researching the area you’re buying into to gauge where current rent rates are sitting and where they may be headed over the next five years. Using the current rental rates for similar properties in the area, deduct costs such as mortgage repayments, insurance, rates and maintenance, to work out what your potential rental yield could be.

Location, Location, Location
Most tenants consider location to be the number one factor when choosing a rental property. This is especially true in areas with good school zones or up-and-coming areas, where tenants may be prepared to compromise on the style of a rental home for the sake of a desirable address.

Condition of the Property
Another important consideration for potential landlords is the overall condition of the property, as that will influence how much of your rental yield will go towards maintaining or renovating your investment. While there may be some opportunity to cash in on capital gains by renovating and on-selling an investment property, you must be sure that the time and cost you put into it is going to pay dividends when you sell.

Lastly, check that the investment property you’re considering meets all the health and safety standards in terms of insulation and ventilation, as that could be another cost you’ll need to factor in if you buy a property not yet up to standard.

Understand the Benefits and the Risks
As with most investments, there are both benefits and risks in property investment, and it’s crucial that you know what each of these are.

Benefits of investing in property include:

• An extra source of income
• Capital gains as the value of the property increases
• A physical and tangible asset
• Direct control of your investment

Some of the risks of property investment include:

• The cost of expensive repairs and ongoing maintenance
• Local market economy changes resulting in a decrease in value
• Unsuitable tenants that may need to be evicted
• Vacancies and no rental income