Property Crossroads - Real Estate Info

5 Things to Consider When Investing in a Rental Propery

by Maricel Ferrer-Custodio on July 20th, 2007

Being a landlord is one of the best ways to profit from the real estate industry.  You don’t only profit from the rental income, but also from the appreciation of the property over time.

Here are 5 things to consider when your planning to invest in a rental property:

1. Rental Income:  Does the property have a good rental yield?  Is it enough to cover the on-going expenses and out-of-pocket costs for the property, including mortgage payments, taxes, insurance, maintenance, repairs and a vacancy rate of around 5%.
2. Capital Growth:  Even if you just break even, you can still profit from the capital growth or appreciation in value of the property.  Check out the property appreciation growth trend in the area.  Are there any new infrastructure developments, population growth or increase in job availability that could influence the potential appreciation of your property? You can read more about these factors in my previous article "Securing a good deal during a real estate bubble".
3. Tax Breaks:  There are also several tax breaks available to rental property. For instance, the cost of maintaining and marketing a rental property can be deducted from the income the property generates.  These expenses include mortgage interest payments, insurance, utilities, maintenance, repairs, advertising costs, management fees and the cost of depreciation. You can read more about these rental property tax breaks here.
4. Professional Inspection:  Have your property professionally inspected, so you can have a good estimate of any repairs that would add to the cost of the property.  Minor repairs should be ok.  To add, you can usually claim its cost on your tax return.   However, if it is a major repair or you need to make any improvements to the place, then better check if it is worth your time, money and effort.  You cannot claim the cost of the improvement in your tax return.  It is usually added to the cost of the property.  You usually get the tax break from the cost of the improvement when you sell the property.  As a guide, it is best to avoid properties with major repairs not unless it is heavily discounted. 
5. Price:  Make sure you’re buying it at a good price.  Compare it with the sold prices of similar properties in the area.  Don’t be tempted with guaranteed rental returns offered by some developers.  Check the validity of their offers.  The rent guarantee might only inflate the price.  Besides, if it is a really a good property then you don’t have to worry about getting tenants. Your purchase price will determine your initial profit or loss.  If you bought it at a bargain, then you have a profit already  However, if you overpaid then you have to recoup your loss over the life of your investment.

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POSTED IN: Buying a Property, Rent, Top Ten Lists