Rental Property Investing 101 for Newbies

Whenever you are investing in real estate, there are certain factors you have to take into account that should let you know whether or not you are making a good investment. Location, local demand, and cost of repairs are among other considerations when researching investment properties.

When you are investing in rental property however, it can be a little more complicated than when you are simply buying to resell, in part because being a landlord is more of an ongoing commitment. Here, then, is overview of what you’ll want to know and understand before you decide to dive into rental property investing.

Understand the Market

When considering whether or not to invest in a particular rental property, make sure that you know the market. That applies in a couple of different ways. For one, you are going to want to know just what the property itself is worth. Check out the listing price on Zillow, see what other similar properties are selling for in that area, and call the real estate companies that may be handling the selling of certain properties to see how long they have been sitting on the market for the prices at which they are listed.

That will give you a sense of the real demand for the property itself, which is important to know if it is really a good investment for you at the price at which it is listed, as well as how much room you might have to negotiate.

Then, of course, you will want to have a firm understanding of the rental market, both in your area generally and specifically in similar properties to the one you are considering. If you are thinking about investing in an apartment complex, speak to the current management of the complex. Ask how much tenants are currently paying, inquire about vacancy, the average time it typically takes to fill a vacancy, usual length of tenant occupancy, and precisely what the renters are getting (how many bedrooms, bathrooms, amenities, do they pay utilities, does the landlord, etc.).

Do some investigation at other, similar properties in the area if you can get that information. This should give you a sense of what a reasonable rate ought to be for people in that area to be able to guarantee yourself the best possible tenants. Otherwise, you may find yourself in a position where you are charging rates that are too high, leading to vacancies and evictions, or you’ll charge too low and not only undercut your profits but also potentially attract a less desirable quality of tenant.

Of course you’ll also want to know about any rent control policies at play in the city in which you may be investing. All of these factors are vital to understand if you are going to be certain that you can make the investment worth your while.

Know Your Costs

There is a whole lot of budgeting that goes into investing in real estate, particularly when you are investing in rental properties. Not only do you have to know what it is you can afford in terms of mortgage, rates of interest, and the normal costs of buying a property, but you have to have a very firm grasp of the costs you will incur with the costs of ongoing maintenance (as well as the costs of any initial repairs you may need to make).

What will it cost you to keep the swimming pool clean, to keep the landscape manicured, to pay for any utility costs, not to mention compensation for management, security if necessary, and any other predictable maintenance costs that will impact your bottom line. If the complex you are thinking about investing in is sufficiently complex in these areas, do not be afraid to turn to a professional consultant to get a sense of what all you ought to be on the look out for and to help you calculate your projected costs should you make the decision to go ahead with buying the property.

Investing in rental property is somewhat tricky business. But the upside is big if you make the right buy. A constant stream of reliable rental income over and above the cost of a mortgage and maintenance is a great mode of income. Just make sure that everything adds up before you do!

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Elizabeth Goldman is the editor of AlternativeInvestmentCoach.com. She has written for Investing.com, Bullbearings.com and many others.