5 Keys To Mastering Rental Property
Investing in a rental property can turn out to be pretty lucrative. The real estate world is booming in rental properties all over the world. Investing in real estate in general has a lot of advantages for the investors. For example, the real estate scene in Canada is on the rise because of the uncountable homes to rent in Toronto. That is why it does not come as a surprise when investors throw themselves in this industry and have the dedication to gain vital lessons about finding tenants, purchasing properties and having a control over the entire rental situation.
Toronto real estate properties have caught the attention of investors worldwide due to their growing and profitable real estate industry. There are a number of reasons as to why investors want to master in rental properties, such as a steady income, ability to utilise leverage and have the chance to gain appreciation potential. If you are thinking to invest in rental properties, there are some basic investment principles that will help you in avoiding a couple of expensive minefields. Hence, today we will be sharing 5 keys to mastering the art of rental property.
- Understand The Market
Successful real estate investors start by doing their own set of homework, and it is extremely essential part of starting your investment journey. Also, when you have a strong knowledge of the real estate market you plan on investing in, the chances of you succeeding increases to a large extent. This may sound like it is a common shared understanding, but rental real estate agents in Toronto shared that not everyone is aware of the importance of prior research and understanding of the real estate market.
Having the market knowledge is a fundamental skill which an investor needs to have, because without the lack of it, you are more than likely to be lost and make disadvantageous decisions. Your research has to further enable you to make well-informed decisions about where and when is the right time to invest in a rental property. Moreover, you need to not just understand the market but its local economy, employment sectors, education opportunities, average rent and the sale price of the house. Basically, if you do a market research in order to understand the market, you will have a better understanding of your potential tenant as it will allow you to understand them and achieve success.
2. Know What Property Should You Invest In
Understanding your market is extremely valuable, but that is not enough to succeed as rental property investor. You need to know what is the best type of property that goes alongside your goals. There are two things to consider, objectives and risk. In other words, what are your objectives and goals, and how much risk are you willing to take on at your comfort level? The reason why these things are important is because it will simplify and guide you in deciding your sub-market. Moreover, after all of this, you will have a clearer image of what is the best area in helping you achieve all your goals.
For instance, if you are a low-risk rental property investor, then you will most likely be most comfortable in taking a slight lesser return on a much nicer house. You may have the belief that your house will attract a tenant who not only has a stable income but also be less affected by sudden life events and also have a longer term of appreciation. However, it is essential for you to keep in mind that if by any chance your tenant decided to move, your property will be vacant for some time and be unable to provide you with any sort of income. All in all, understand your goals and your risk factor in achieving those goals as only then will you be mentally prepared to know which rental properties should you invest in.
3. Renew Your Leases
We cannot emphasize this enough, always remember to renew your lease. According to a survey, if landlords have a pretty obvious glaring spot, it is solely due to the failure to renew their tenant leases on time. You would be surprised to know how many landlords do not renew their tenant leases each year, hence, they are letting their tenants to simply go on a monthly leases. But you may wonder, what is so wrong about that? The wrong part in this is the landlords thinking.
As an investor, you should not have the mindset that it is better to go on a month to month lease just so that if you wanted to have your tenant out, you cannot all because of the fact that they are not attached to a lease. Moreover, it is also important to renew your lease so that you can raise a certain amount of rent all depending on the market rate. If you fail to do so, you tenants will not be kept in check and it will get harder for you to manage them. Depending on each state, landlords have the ability to give an eviction notice for a specified period. Investors can utilise this opportunity to offer a fresh leave contract at the very same time.
4. Down Payment
Now, when you have made up your mind to invest in a rental property, you will have to approach a lender. This particular lender will do the majority of financing for your rental property. Let's be real, that is a lender's job and they are experts at it. They will ensure you with approving a loan amount which will be further secured by the rental house you plan on investing in through the loan proceeds. This process if often known as collateralization, a term used by real estate professionals.
Mortgage payments are a commitment that you have to stick through all the way to the end, so that you do not jeopardize the investment process. During financial crisis, lenders often offer loan that simply do not require any sort of down payments, but that in itself will be disadvantageous to you as an investor. That is because, if you put a larger sum of money from the beginning as a down payment, your mortgage payments are going to be lower which will make paying off the mortgage much easier.
5. Knowing Your Numbers
When you are investing in a rental property, you need to have a rough estimate and a fair idea as to how much will the property's income provide you with. If in any instance, it is unoccupied property, you should try speaking to the neighbours or real estate agents to understand more about the property's potential income value. From understanding that you will incur a large sum of maintenance expense to the location and size of the property, all of these factors will affect your return on investment.
Once you have a strong grip and understanding of the expected rental income and all the other expenses related to the property, such as insurance, taxes and maintenance, you need to make sure that the net amount is able to cover your mortgage payments. Despite the fact that your calculate return on investment is low, you need to understand that investing in the real estate industry is a long-term investment. Hence, having a debt-free rental property where you plan on retiring in, and having access to a steady income that covers other investments, is the perfect plan for retirement.
In conclusion, the bottom line is that these 5 keys shared above will most likely help you in succeeded as a rental property investor. Moreover, if you carefully finance your investment project, conduct due diligence, do your market research, understand the importance of a down payment and understanding the lease concept, you will be much better prepared for whatever that may come your way!