Dos and don’ts for buying a property to earn rental income

[ecis2016.org] An investor, who is looking to buy a property and lease it out, should approach the process with a lot of forethought, to get optimal returns and avoid a serious financial setback from a wrongly-chosen property. Here’s what you should consider, when looking for an income-generating property

From the initial choice, to finalising the purchase of your first rental property as an investment, there’s plenty of planning and work involved. You should begin hunting for your rental investment property with an unbiased approach, to the areas and all of the properties in your investing range. Let us have a look at the foremost things that you need to consider, when trying to find the best rental property.

You are reading: Dos and don’ts for buying a property to earn rental income

Area

The quality of the location in which you purchase a rental property, will determine the kind of renters you will find and how frequently you may face vacancies. For instance, in case you purchase the home in an area near a university, the odds are that your pool of expected renters will largely consist of students. You may be faced with frequent vacancies, during the time when students return home for the holidays. Also, there would be a higher churn of tenants, when, ideally you should look for long-term leases.

Examine the location and the project, for existing and planned public parks, shopping malls, gymnasiums, cineplexes, public transportation and all the other factors that would conceivably entice tenants. You can use developers’ project brochures and also do online research, to determine the availability of such facilities in a neighbourhood.

You also need to know what new developments are coming up and what has been zoned for special purposes by the local municipality. Ideally, you should look for a region with excellent growth prospects, where schools, business parks, shopping malls and entertainment zones are either already in place or planned.

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Simultaneously, be wary of any new developments that could reduce the value of the surrounding properties, such as by causing the loss of green open spaces or public parking facilities.

Property taxes

Property taxes aren’t standard across the board and as an investor intending to earn money from rent, you should know about how much you will have to shell out, as taxes.

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High property taxes are obviously justified in very good areas, which are superlatively connected. Such areas also usually attract long-term renters. Locations in upcoming growth corridors should be preferred.

Educational institutes

Your tenants may be a family with kids, or intending to have kids, who would prefer areas which are near to one or more good schools. The presence of quality schools in the area you invest in, will positively impact the worth of your investment. Remember, the total worth of your rental property comes into play, when you finally sell it, even though you’ll be mainly concerned with earning monthly rentals in the interim.

Job market

Areas with growing employment opportunities have a tendency to draw more people – meaning more renters. Obviously, the most desirable situation for you, would be to own a rental property near to or well-connected to an established or rapidly-growing workplace hub, with reputable companies active and generating jobs there.

Project quality

Today, rental home seekers prefer projects, which add value to their lifestyle. Good projects with the best lifestyle deliverables, may be out of their purchasing reach, but they expect to get such facilities in a rental home. Projects with amenities like gardens, children’s play area, sitting area for elders, reliable security and professionally managed maintenance, are always preferred by families hunting for rental flats. The ambience inside the complex is very important to them.

Rental amount

You should be aware of what the typical rent in the region is. Make sure you find out enough about the region, to judge where it is headed in the following five years. Property taxes may rise and even if you can afford them now, significant developments in the area which increase property taxes, may make them less affordable.

Single-family homes often bring renters looking for long-term leases. A dual-income family is preferable over single professionals, as they are likely to pay their rent on time and to be fiscally stable. Hence, as a landlord, look for areas, where it is easy to find such tenants and where such properties are available.

When you’ve narrowed down the right location, look for a property that can potentially yield steady and growing rental income, as well as appreciation on the capital value of the home. Consider properties which are within your budget and slightly above it, as well. The slightly costlier options can be paid for by some bank leveraging and developers may be open to negotiating the price.

Also, remember that a property can become even more desirable, with some modifications and cosmetic changes, which will attract tenants who are willing to pay higher rents. Such changes to the property will also serve the purpose of increasing the sale value of the home, in case you want to put it on the market after some years of good rental income.

Every state and every city has areas, which have suitable and excellent properties when it comes to rental potential. In Pune, areas like Undri, Kothrud and Ambegaon, are excellent locations for rental properties, because of the consistently high demand. In Mumbai, the more cost-effective locations in Navi Mumbai, such as Koparkhairane, Airoli and Ulwe, are very good options, although property prices are naturally higher there.

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Do your research well and ensure that you have your finances in place, if and when a very good option comes up. Remember, real estate investing does not begin with purchasing a rental property – it starts with creating the finances where you can purchase a rental property.

Repairs, maintenance and renovation 

If you come across a property on sale, which offers potential to earn rental income, estimate the amount you would have to put in to repair or maintain the property, before you invest in it. Sometimes, sellers may be giving away their property on sale at very affordable prices and you may be lured by the attractive price. However, if the property is not in good shape, this may not be a great decision. Depending on the kind of repairs required, you may have to spend anywhere between a few thousands to a few lakhs.

In case there are repairs to be done to give a facelift to the property and if these costs are recoverable over the next few months or year, then, you can buy the property. By ensuring the upkeep of your property, the property can bring in sizable rental income. Remember to never shy away from minor repairs and maintenance of the property. Even a small renovation can lend a new look to the property and a potential tenant may be willing to occupy it at a good rent.

Check for the following repairs to be done in a property that interests you and if you are going to invest in it. These repairs may cost you a significant amount and so you must be ready to budget it as cost towards buying a new home.

• Repairs to the foundation of the property.
• Electrical repairs.
• Repairs to the roofing.
• Repairs required due to water damage or seepage.
• Mineral build up in the water heaters.
• Damage to the existing pipelines.
• Repairs for the septic system.
• Mold removal.
• Damages to property due to termite or pest infestation.

While renovation is a cost incurred, at times it can help you make the space more efficient. For example, a 3BHK may be converted into a 4BHK and let out to paying guests. This arrangement brings in more rental income from the property. Another example could be of remodeling an old property in a way that you could rent it out to two households and not just a single family. If you do not wish to invest a lot of money into renovation, you could simply touch-up the old house with new flooring, painting and undertake minor repairs, to give the property a new look.

If you wish to glam up your new home, you could also log on to Housing Edge and get customised solutions for all your home-related needs. By improving the overall health and condition of a property, you can expect better rental income.

FAQ

(The writer is CMD, Amit Enterprises Housing Ltd)

(With inputs from Sneha Sharon Mammen)

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Category: Lifestyle