As parents, we often need to dive into different financial investments to see what may help our family and our children’s future. The cost of raising a special needs child often doesn’t account for our child’s needs after we die. Please consult someone who qualifies to assist you in your specific financial situation. In this post, we dive into the world of investment properties, please feel free to leave a comment with any other types of investment strategies that may help others plan for their future.
Property is one of the most popular investments out there right now and if you get it right, you should see a good return on your investment. It’s fairly safe because property prices are on the rise, and there are a lot of renters out there, so you should be able to find tenants fairly easily, as long as the property is nice. However, a lot of first-time investors underestimate how much work goes into an investment property and they assume that, as long as they buy a house, they are guaranteed to make loads of money. Unfortunately, it doesn’t work that way and if you make mistakes along the way, you may find that your returns are nowhere near as high as you expected them to be. There are a lot of costs involved with owning and renting out a property and if you don’t manage them correctly, they eat into your profits and you don’t actually earn that much.
That might put you off investing in a property but it shouldn’t because there are plenty of ways that you can ensure that you do see a good return. These are some of the best ways to increase your returns on a property investment.
Understand The Property Market
If you go in without a clear understanding of the property market and the different factors that affect property value, you are far more likely to make mistakes. You also need to know what renters in your area are looking for in a house or you will struggle to find tenants. If you have no prior experience with property investment, check out this quick guide to learn everything that you need to know. You need to understand all of the different costs involved, like administration costs when buying the property, as well as the maintenance costs that you will need to cover after you buy. Property investments aren’t for everybody, so make sure that you know what you are letting yourself in for before you start putting any deposits down.
Find The Right Mortgage Deal
When you find tenants for your property, the rent that they pay goes towards the mortgage and the maintenance costs, and anything that is left over is your profit. So, it makes sense that the lower the mortgage payment, the higher the return. Paying a larger down payment on the property is one way to reduce the mortgage, so if you don’t have that much to invest, you may want to consider saving up some more money before you invest.
Once you have your down payment, it’s time to start looking for a mortgage and finding the right deal is key to increasing your returns. If you have a high-interest rate on the mortgage, that will eat into your profits, so you need to shop around. Make sure that your credit rating is in good shape because you will struggle to find a good deal if it isn’t. You should also consider working with a mortgage broker, like Altrua Financial, because they will be able to find you the best mortgage deals. A good mortgage broker will compare a wide range of different deals from a variety of lenders to get you the best possible rate. They also know a lot of the tricks that lenders use, which can trip you up if you try to negotiate deals on your own. In a lot of cases, lenders attract people with a low-interest rate to start with, but it will shoot up after a few years. You need an experienced mortgage broker to find the best mortgage deals and make sure that you don’t get caught out by things that are hidden in the fine print.
Focus On Presentation
The rental market can be competitive and properties are snapped up quite quickly, which means renters often make fast decisions. Their decisions are based on the location and the features of the house, but they are also based on the first impression of the house and how modern and well kept it feels. There are a lot of lazy landlords out there that don’t look after their properties very well, so it’s important that you focus on presentation and make the property look great.
The outside of the property needs to be in good condition so any potential tenants have a good impression as soon as they pull up outside. Make sure that the exterior has been freshly painted and the garden is well kept. If people turn up and see an overgrown garden, they will instantly be put off because it means that they have to put a lot of work in if they want to use that outdoor space.
Once they get inside the property, cleanliness is vital. Remove all of the unnecessary furniture to make the place look more spacious and make sure that there is plenty of natural light in there. If you present your property in the right way, you can charge higher monthly rent, so don’t underestimate how important those small details are.
Look For Long Term Tenants
Changing tenants always comes at a cost because you are losing rent while the property is empty and you will have to invest money in decorating and making small repairs if you want to improve your chances of finding new tenants. That’s why you should always try to look for long term tenants, if possible. You should consider this when choosing a property in the first place because certain demographics will be more likely to stay in the property for longer. For example, a family that have stable jobs and kids in local schools are not that likely to move out of the area. But a young single person at the start of their career has fewer ties and they are more likely to move to a different area for work or upgrade to a bigger place if they enter into a relationship. So, if you buy a single bed flat in a city center, you will find it more difficult to get tenants that will stay long term and you may be better off looking for family homes in a nearby suburb.
When you are setting the rent for a property, you should consider the length of lease that you want and the current state of the market. For example, if the area is saturated with rental properties, you could consider lowering the rent slightly but opting for a longer minimum lease. This will encourage tenants to sign up for a longer tenancy and stay in your property for longer because the alternatives are more expensive.
Always Screen Tenants Thoroughly
Bad tenants are incredibly expensive for a landlord. If they do a lot of damage to the property, you may still have to pay for some of the repairs out of your own pocket if their deposit doesn’t cover it. When you have tenants that refuse to leave and you are forced to evict them, there are a lot of legal costs to cover and those losses soon add up. You also have to consider the time it takes to get the property in good shape again before you can show new tenants around, and that adds up to a lot of lost rent.
In order to avoid this, it’s important that you screen tenants thoroughly. Always ask for references from previous landlords and make sure to see evidence of their ability to pay the rent on time each month. You should also run a credit check because you don’t want tenants that are in a bad financial situation with lots of debts. It’s much better to take a little more time to find tenants so you can make sure that you don’t end up with bad ones that cost you a lot of money.
Consider Hiring A Property Manager
Many first-time property investors think that they will save money and increase their returns if they handle everything themselves instead of hiring a property manager but that is not the case. Although a property manager will take a percentage of your profits each month, they can help you to maximize your returns as well and you will still increase your overall earnings. Property managers have a lot of experience so they will be able to advise you on the best way to present your property, help you screen tenants and find reliable ones, and organize maintenance. They will have good relationships with tradespeople that can carry out good quality work on the property for a reasonable price, but if you handle your own repairs, there is a risk that you will choose to work with the wrong people.
If you are not managing property full time and you are still working, time is going to be an issue. Property is a hands-on investment and if you want to manage your property well, you will need a property manager to deal with things on a day to day basis. However, choosing the right property manager is key if you want to increase your returns. Make sure to find somebody with a lot of experience and always check the property management fees. They can vary quite a lot, so make sure to meet with a few different property managers and compare their offerings.
If you are a first-time property investor, don’t get complacent and fall into the trap of thinking it is easy money. The only way to increase your returns is to follow these important steps.