Investing in real estate can be challenging if you do not understand its dynamics but also rewarding if you know what you are doing. The good thing is that investing is not rocket science; anyone can learn and become a great investor.
There are two ways to make money out of real estate: first, you can buy a property and resell it at a profit once its value goes up. Second, you can buy a property with the long-term intention of renting it out.
If you own a rental property, you can rent it out and realize an ongoing return from the rental income. Hiring property management services is a good idea because they will assist you in finding tenants. Also if you improve the house and maintain it well, its value will likely increase, attracting higher rent, or you could even sell it in the future for a good return.
Jump to:
The real estate industry can be challenging for a beginner investor. Therefore, it would be wise to work with the best real estate companies in Qatar to ensure you get the best deals. But even if you get the best agent in town, there are a few things you need to know as an investor.
How to Invest Smartly in Rental Properties
1. Determine the ROI
Like with any other investment, you must know whether the property you wish to invest in can bring good returns. Your goal is to make a profit; so, if you estimate that there would be low or poor returns on the property, there is no need to put your money into the investment.
You can use the standard investment formula to calculate your ROI. You need to subtract the cost from the gains and divide the result by the cost. For example, if you buy a property worth $50,000 and later sell it for $60,000, you will divide the difference ($10,000, including taxes and other expenses) by the initial purchase price.
For rental properties, calculating ROI is a bit more complicated, but your agent should be able to help out. You will have to include taxes, rates, agent fees, maintenance costs, and other expenses. Plus, many variables can affect your potential income and expenses. So, you will have to work with estimates.
While results can never be guaranteed in rental properties, you need to work your estimates well to determine potential ROI.
2. Focus on Neighborhoods with Appreciating Value
No one should tell you that you can never go wrong with real estate. The idea that housing demand is ever on the rise and rentals will always attract tenants is misleading. Economic conditions can always change, which would ultimately affect the demand for housing.
Location is a critical determinant for the demand for housing. Not all neighborhoods are the same. Some will attract more value than others, while some will appreciate without the rent necessarily going up. Factors such as good schools, hospitals, and strong employment figures will determine the appreciation of houses.
Rental properties do not offer immediate returns, even if you get a tenant immediately. It will take several years before you can break even. Your goal should be to find a neighborhood where the rent appreciates fast.
3. Due Diligence
With rental properties, it is always difficult to compile all expenses. There are always little expenses, such as repairs that may be unrecorded. Such failures can lead to losses in the long run.
There is a list of expenses that should all go into consideration. You will incur costs in mortgage fees, mortgage interest, broker commissions, property management, repairs, legal fees, insurance, taxes and tax-return fees, and utilities. You will also advertise for tenants, conduct repairs, pay for cleaning and maintenance, not forgetting expenses for traveling to and from the property. Some of these costs often go unnoticed.
When doing your estimates, it is impossible to foresee some of these charges. Consequently, do a lot of research before you buy the property or contact repcalgaryhomes. Find out about the property as well as similar properties in the location.
4. Financing
Financing a rental property is a bit more complicated than other types of real estate properties. In most cases, you are required to put a down payment of 20%, but it would be advisable to meet most of the cost to be safe with a rental property.
If you depend on the rental income to repay the mortgage, what would you do if you lacked tenants for several months? Will you miss your repayments? These are questions you need to ask yourself in advance.
Do not put yourself in a position where you cannot repay your mortgage without tenancy. Work on a solid repayment plan before investing. What happens if I just stop paying my timeshare?
5. Identify the Needs of Potential Tenants
You need to know the needs of the tenants in the areas you identify to invest in. If the majority of residents are families, then studio apartments are not going to fetch good money. Also, the size of families is an important consideration so that you invest in rental units that are spacious enough to meet the residents' needs.
Conclusion
Investing in rental property can be challenging. You have to think about it carefully before walking down that road. Always ensure that you have a secure repayment plan if you are going the mortgage financing way.
