If you retire or get a huge jackpot of money, you always look for possible ways to invest them with hopes of high return down the lane and real estate is an alluring field in such situations. Though many people are not fond of becoming a landlord or landlady and to manage with the cumbersome process of property management, they still consider owning rental properties as a steady way of income. So, it is essential to understand the risks associated with the process from people like nicki zvik developer and expert in real estate sector.
Before buying a rental property
Due diligence is a must have before investing in a rental property. It means investing in the right property in the right location where there are lot of work places, schools, colleges and hospitals; areas with right tenant demographic data where people pay rents on time; areas with less crime rates. Also, it is good to look at more number of properties before finalising to get the best out there. An investor who wants to get a rental property should first get a basic knowledge of taxes, insurance, vacancy rate, property management fees, repair and maintenance projections, utility bills like electricity, capital expenditures, Net operating Income (NOI), cash-on-cash (COI), capitalisation rate, etc. This knowledge is essential for them to run over the total value in their minds before making a decision. Also, it is a good practice to run through the approvals and certificates associated with the property to ensure security.
What decides your profit?
Profitability of rental properties depends on several factors like cost of property, which influence both monthly debt service and capital gain during flipping. Financing is another major criterion that impact free cash flow and can cause interruptions in any of the process. While financial models allow the investor to see cash flow, the market only will decide upon the lease rates. The operating and maintenance costs of a property cannot be taken lightly and it should be included while planning the cash flow. There are online tools nowadays to calculate the cash flow and capital gain for rental properties and can be useful for new investors.