Are you planning to diversify your assets by taking advantage of the current dip in the prices of real estate properties? While rental property ownership is by no means a passive investment, it can actually provide you with an additional source of income but also profitable tax benefits. However, buying a property that you can rent out is the tricky part. A small mistake in this important stage might make you end up paying more than you initially intended. Here are a few tips that can help you make a sound buying decision.
The first step to investing in a rental property is to make sure that the property you bought can help you withstand fluctuations in its value. Whether you are working solo or with a real estate agent, you have to understand what the value price of a property constitutes. While you can try making low-ball offers until you finally get the deal you want, the best way to find great bargains is to act quickly once a potential target is in sight. To get a feel for the demand, you can also try to benchmark the rental price of comparable properties in the area.
In most communities, rental properties are usually treated as businesses rather than areas of residence. Usually, towns calculate occupancy by measuring the square footage of the unit so properties you consider four-bedroom homes may turn out to be only a two-bedroom home when rented. If you were asked to renovate the property you purchased, you should also remember that township-enforced renovations could be quite expensive. It is best to make sure that the property you purchased is in accordance with rental regulations in your area before trying to earn any income from it.
When investing in rental properties, you should also remember that it is more practical to buy those that are located near your primary residence. Absentee landlords usually resolve maintenance problems less quickly so they end up paying for bigger expenses. Even municipalities are not too fond of landlords who do not live close to properties they rent out so they usually face high fines and citations. It is best to buy a property that is no more than twenty minutes away from your primary residence so that you can remain available to local officials and tenants at all times.
The size of your property will greatly affect the rates of your tax so buying a land that is bigger than an acre is not really a wise move. Aside from the extra taxes it will cost you, you will also need to worry about bigger expenses when it comes to keeping it well maintained. Unless you are planning to build another rentable structure on the lot of your property, investing in a huge rental property will not be in your best interests. Remember, the value of rental homes is not directly proportional to its size in square footage.
These are only some of the most important things that you should keep in mind when buying a rental property. Once you have found a property that meets the aforementioned criteria, you can be sure that you will be earning lots of money from it for many years to come.
Based on the article by Shawn M Mac Gavin
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