Things You Should Take into Account Before Purchasing Your First Rental Property

A good rental property can be one of the best investments you ever make. A well-maintained property in a profitable locale can provide you with a fantastic source of passive income for many years to come. Still, this doesn’t mean that one rental property is as good as the next, and if you invest in the wrong rental, you’re liable to be feeling the financial sting for a very long time. First-time rental property investors looking to play it safe can benefit from taking the following factors into account.

Overall Condition of the Property

Purchasing a rental property that hasn’t undergone a thorough inspection from a certified professional is a decision you’re likely to regret. Needless to say, if large problems rear their heads well after a sale has been finalized, a massive case of buyer’s remorse is practically guaranteed to follow. So, before committing to purchase your first rental property, make sure that the property is subjected to a professional inspection.

As a buyer, you have nothing to lose – and a fair amount to gain – by making an inspection a requirement for any property deal. To start with, purchasing landlord insurance for a property is liable to prove impossible in the absence of an inspection. Furthermore, an inspection is necessary for any investor who wishes to know exactly what they’re purchasing. Regardless of how new a property is or how flawlessly it seems to have been maintained, it could be home to a plethora of problems that non-professionals are unlikely to spot.

The results of an inspection also stand to increase your bargaining power. Should they reveal the presence of problems of which you were previously unaware, it’s perfectly reasonable to ask that the seller reduce their asking price to reflect the cost of addressing said problems. Furthermore, if an inspection uncovers a variety of issues that are massive in scale and exorbitantly expensive to fix, you may ultimately decide to focus your attention on other properties.

Location of the Property

Location is arguably the most important factor in any real estate investment – and rental properties are no exception. So, before purchasing your first rental, make sure to thoroughly research the area in which it’s located. To give yourself an idea of how much demand for housing exists within an area, carefully consider the size of its population, rate of growth, local economy, home prices and rental rates. Unsurprisingly, areas that have booming populations and robust property values tend to have far more housing demand than areas with shrinking populations and low property values. Furthermore, the better the location, the higher the price your first rental is likely to fetch should you ever decide to sell. This can prove very helpful to someone who constantly finds themselves wondering, "Is real estate a liquid investment?"

If you’ve only been looking at properties in your current locale, you may be limiting how much you stand to make from your first rental. So, if there isn’t much demand for housing where you’re located, consider branching out into other towns, cities and states.

Upkeep and Management Costs

Before purchasing your first rental, make sure you’re aware of how much the property will cost to maintain. For example, if you’re looking to invest in a large multi-family rental, you should be prepared to spend a fair amount on maintenance and upkeep expenses each month. In other words, the larger the property is, the more maintaining it is likely to cost. Just remember – being able to buy a rental property doesn’t automatically mean that you’ll be able to maintain it.

Furthermore, properties like apartment complexes and condo communities often require full-time maintenance personnel and dedicated property managers. So, anyone interested in purchasing a property of this scale will need to consider the cost of these individuals’ salaries when calculating monthly expenses.

Although rental property investments can prove exceedingly profitable, it should be understood that this is far from a "one size fits all" affair. While some rentals can be a boon to your finances, others can deplete your resources until they’re sold at loss. That being the case, it pays to be discerning and meticulous when seeking out your first rental property. Fledgling investors looking for effective ways to minimize risks when purchasing rentals can learn a lot from the advice outlined above.

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