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Real Estate Investing : Investment Property Last Updated: May 14th, 2012 - 22:24:01

Investment in Rental Property - An Overview
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Tired of the uncertainties of the stock market, many people are turning towards investment in rental property. However, you need to find out if you have it in you to be a landlord. The whole venture could be quite profitable, if you are cut out to be one. Even then, success is not always guaranteed. For those who succeed, it is a great way to build wealth. 

The decision to buy a rental property is the just first step. You need to go in for a lot of research to track down a profitable rental property. This usually takes a lot of time and the right connections.

Buying Rental Property

You need to work out many details before buying rental property. You must be fully aware of the pros and cons of buying and owning a rental property. You will need to talk to other rental property owners to find out what is involved. You need to discuss how they deal with different types of tenants, and how they deal with vacancies, etc. Investment in rental property is worthwhile if you have it in you to face the challenges that may be involved.

You should know how long you plan to keep your rental property. If you plan to keep your property for a long duration, say 20 years, you will need to invest more towards the property's maintenance, repairs, improvements, etc. On the other side, if you plan to keep it only for a shorter duration, such as 5 years, you may not need to invest heavily on the improvements. Investment in rental property for a short duration may be risky, as over a short span of time the property may lose in value. On the other hand, the value of properties will certainly appreciate over longer periods. 

A Special Expertise

Buying rental property requires a particular kind of expertise. There are many ways to go about acquiring rental properties. You need to have your network of acquaintances, such as city hall clerks, and bank employees who can inform you of the properties to be sold. Working closely with real estate agents would inform you of any impending foreclosures, which could be profitable buys.

You could widen your contacts by joining a property owners'club or association. This will keep you informed of any property for sale. Other ways are scanning the classifieds for any property for sale, cruising the neighborhood for 'for sale' signs, and talking with other landlords known to you. 

Shape Up Your Finances 

You will need to get your finances in shape. Ensure you have a great credit history, and if not, work to get it corrected. Lenders, understanding that you are more likely to default on a rental property than on your own home, would require larger down payments, higher rates of interest, and a stronger financial base from you. 

You would do well to have substantial cash leftover after investment in rental property, in case of unexpected repairs or vacancies. It would be advantageous if you had one month's rent kept aside for each rental unit you owned for such contingencies. Ensure that the income from your rental property supplements your retirement finances and you do not depend solely on your rentals. 

Avoid Overpaying

Every real estate market plays differently, but you need to ensure that you do not pay too much. You are buying rental property as a source of income or to supplement your income. You need to drive a hard bargain; else, you may never be able to re-coup your investments as easily as you would have thought.

Remember one thing. The home you buy for your personal use may be an emotional buy, but you cannot afford to do the same with your investment in rental property. You need to look hard at the numbers to see how your investment will pay off. You may require paying more in a hot market, but this too involves a calculated risk. 

Your rental income should cover costs, such as mortgage payment on the property, taxes, insurance, maintenance, and repairs. You also need to compute a vacancy rate of around 5%. Even if you just manage to break even, you could still gain from any price appreciation and any available tax breaks on rental properties. Check with your tax consultant about deductions on rental properties. The cost of patching a roof or fixing a leaking pipe could be deductible, whereas replacing that roof or those pipes, could be considered an improvement, and cannot be deducted.

Therefore, before buying rental property you need to work out all aspects thoroughly before investing in rental property.

See Investment Property in US and worldwide here.


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