Wondering how to buy a rental property but not sure where to start?
You may heard a lot of people saying that investing in rental property can earn a passive income and thus build wealth for your future use. However, you’re worry about if there are any risks exist in this field, such as couldn’t find tenants. Well, all I can tell you is, every investment have its risks, but the problem is, do you know how to manage the risks and how much risks you can afford. You should put these into your consideration before starting your investment career.
Apart from that, you may also wonder if the economy changes can affect your rental property market? Well, we tell you that, before buying a rental property, the main things you must look out for are a solid economy stable employment conditions and minimal new apartment construction. Once these 2 situations have meet each other, it can produce a tight rental environment.
In order to be a smart landlord, the first thing you’ll need to learn about is vacancy rates. If the vacancy rate is increasing, which means rental supply is growing and tenants have much more choices of units. On the flip side, if vacancy rate is declining, which means supply is tightening and your property may be in higher demand and thus the landlord could adjust the rent to a little higher. Therefore, all the thing you’ll need to do is find a balance point between supply and demand, meaning supply is appropriate for demand.
The Top 3 Tips For Buying A Rental Property
➊ Come out an investment strategy
Before buying a rental property, here are the following questions that you must ask yourself first;
➣ You want to target at which type of property? (apartment, condominiums, flat, landed house, residential property or commercial property etc)
➣ Where is the location you would like to target at?
➣ What is your target tenant?
➣ Buy-to-hold, buy-to-let, or buy-flip-resell
➣ How much deposit you can afford for the property that you chosen?
➣ Apply bank loan or use your own pocket money to buy it?
Acquiring and operating an investment property is totally different from buying a property for personal uses. If your investment strategy is buy-to-let, your investment goal is to generate income over and above your monthly loan instalments, while building equity on your property in long run.
Basically, a property buyer required to pay a minimum 20% down payment to buy a property (depends on the total amount of bank loan that you can borrow). The more down payment you pay, the lesser you have to borrow and the lower monthly loan instalments. Let say, your monthly loan instalments is only RM 500, your rent is RM 800 – RM 1,000, your tenant just help you to afford the loan instalments. Therefore, you just earn the extra money from the rent and you no need to spend a single cent except for property maintenance.
➋ Choose the right rental property
As mentioned above, the type and location of a property are matter in property investment. It can affect the demand of your property and the number of rent.
Research and due diligence are a must. Look for the areas with strong economic fundamentals such as population, job opportunities and average income, and increasing home prices.
Other factors can affect a property in value appreciation are proximity to famous places such as transportation, shopping mall, universities and other amenities. These amenities are always boost up the property market. You may want your property that appeals to potential buyers and not just tenants, because the property value increase over time and you can earn a massive profit once you sell out.
➌ Set the right rent
You’re finally come to the “rent setting” moment, what things you should be aware of?
Remember, you’ll need to set the “right” rent which means high enough to generate positive cash flow for your property, but meet the market conditions. To get the reasonable rent in the area, you’ll need to search the comparable units by checking the local landlords advertisement. You can go through online property site, such as iproperty, propertyguru and etc to figure out the right rent.
In larger cities, downtown properties might be your first choice as a investment location, since they will appeal to tenants. However, it’s also where average prices are higher and therefore less affordable. That makes generating positive cash flow more difficult. Therefore, you’ll need to figure out the method to solve this problems, or just look for other location where the rent is affordable for the tenants yet can generate positive cash flow.
Last but not least, always do your research before buying a rental property. Always look for the location that in close proximity to the famous amenities, set the right rent, target the right tenants, and the most importantly, generating cash flow for your property, otherwise is no point for this investment. Good Luck!