investment home   

    Owning a rental property can be a profitable investment —

    but it’s  not everyone. Here are some tips and insights

    you can use to make your investment as sound

    and profitable as possible.
 
    By Brandy Peterson

   

 

Owning rental and investment properties has lead to financial success for hundreds of years.  It is a proven way to build wealth, and it is something that anyone can do regardless of background or education.  It is not a risk free opportunity, however, and there are many things to take into consideration before you begin your search for the perfect rental property.  Here are some tips and insights you can use to make the investment as sound and profitable as possible!

Location.  There really shouldn’t be a real estate article written that does not place a huge emphasis on the location of the property. This is so important when you are looking for a rental home.  A good location will not only mean consistent growth on the value of the investment over the years, it will also affect the amount of rent you can charge and the quality of the tenants you will attract.  Look for a neighborhood within easy distance to amenities and reputable schools, an area that has strong growth and resale value and one that is not too far from where you live so you can maintain and manage the property easily.  When considering if the location is right or not, ask yourself, would I live here?  If you wouldn’t, many tenants (especially good ones) wouldn’t either.

Income.  The whole idea in a nutshell is to purchase a property that has the potential to bring in rents that cover all the costs of the mortgage, taxes, insurance and maintenance the home will require.  If you find a property you love but the costs will not be covered, keep looking.  Taking on an investment property that will cost you money each month, drastically increases your financial risk. It will also make the job of managing the property a thankless one since you don’t have profit for the time and work you are putting into the home.  To be sure the home will cover the expenses, look for a property with multiple suites, one in good up-to-date condition, and one that has features tenants will need.  Extra parking and storage space, for example, are often lacking in rentals and will increase the value of your investment if you can offer them.

Maintenance.  A common mistake among landlords is not putting enough time and energy into maintaining the investment property.  Neglecting regular maintenance will depreciate the home’s value, lower the amount of possible rent you can earn, and reduce the lifespan of the key components of the home.  A perfect example is paint.  Keeping the paint fresh on the exterior of the home not only keeps the curb appeal attractive, it protects the exterior siding and reduces the likelihood of rot, something that can be a lot more expensive to repair.  When buying a rental property ensure you will have the funds and the time necessary to maintain the home as needed.

Reserve Fund.  All investments carry some risk and this is true of rental properties as well.  Some of the risks a landlord may face are vacancies, property damage and depreciating land values during slow markets.  All of these risks can be successfully navigated with the presence of a reserve fund.  When investing in a rental home, first be sure to have enough money set aside to cover three to six months of the home expenses.  This means you have funds for three to six months of mortgage payments, insurance costs, utility fees, property taxes, and maintenance in an account.  It goes without saying that if you have a six month reserve fund, your risks will be less than if you have a three month reserve.

Follow these guidelines, and you will be on your way to a profitable real estate investment!  View it as a second job, after all, your tenants are paying you hundreds of dollars each month, and for that income, be willing to maintain and improve the property over time.  You will find owning a rental home is rewarding, as well as lucrative!

 

Brandy Peterson is a real estate professional living in Powell River, BC.  You can reach her by e-mail at brandypeterson@shaw.ca , on Twitter (@branpeterson).