Buying properties to rent out can start as a way to diversify your investments or even as a hobby. However, it is also a type of business that can require a large percentage of your time and resources to run well. Is this the type of business decision that makes sense?
The most important factor in determining whether a rental property turns out to be a success is the overall performance of the real estate market. You will go into this business looking to make a big profit due to rising prices, but you can't be sure that will happen while you own a certain property. How to reduce the risk of losing money if the market experiences a downturn?
You should start by researching the real estate market in the area where you are considering buying. Take a look at historical pricing as well as any planned development or other issues that may affect pricing in the future. Is there a housing shortage or is new construction planned? You will also want to consider factors that affect demand, such as the presence of large commercial premises or colleges.
Properties are best considered a long-term investment, as the price tends to fluctuate in the short term, but house prices are generally expected to rise over a period of a few years. Therefore, buying a house is a better idea when you know you can hold onto the investment until the market goes up.
The other part of the business is how the monthly rental income is used to offset the cost of the mortgage. In an ideal world, rental income pays for the full cost of the mortgage and any other expenses that arise.
You will see the term property yield or rental yield used in this regard. It is a number that expresses the total annual rental income as a percentage of the total value of the property. The higher this percentage, the faster you can expect to recoup the purchase cost through rental income.
It also helps to keep mortgage costs low. You can get a quick mortgage decision on a comparison site like Trussle, where offers from major lenders are instantly compared on your behalf. Be sure to check the buy-to-let option when filling out your initial information, to ensure you see the right deals. Sites like this will examine thousands of available offers to find the one that best suits your personal ambitions. With many of its integrated systems online, you should be able to make a decision within five days. In the world of trading, time is money, so a quick turnaround is always necessary.
As suggested earlier, the real estate business is most suitable for a long-term investment approach. If you think you'll need the money ASAP, this might not be the best way to spend your resources. You might also find that you have to spend more time than expected dealing with tenants, contractors, etc.
Still, if you're looking to put your money to work with a type of investment that tends to pay off in the long run, buying a property to rent out can be a great business decision.
