What would you do with extra money in your bank account each month? For some people, the extra money would allow them to save for retirement. For others, the extra funds would help them pay for their kid’s college education.
One of the best ways to generate passive income is by investing in Memphis investment properties. In a big city like Memphis, it’s easy to find tenants to fill your properties. Making the wise choice to invest in rental properties can provide you with an appreciating asset that also generates monthly income.
Before you’re able to invest in rental properties, you’ll have to figure out how to assess rental properties. Finding the right rental property takes time and research. Buying the wrong rental property can prove costly.
In the article below, you’ll find a list of factors to consider when searching for the perfect rental property. Read on to find out how to find a rental property that will help you generate revenue.
Consider the Mortgage Expenses
As a rental property owner, your mortgage will be your biggest expense every month. You have to make sure that you can charge more in rent than you owe in mortgage payments.
You can get a lower mortgage payment by putting down a large down payment or shopping around to find a low-interest loan.
Think About Property Taxes
When you’re looking at real estate investment tips, you may find articles that tell you to buy properties that might appreciate. One issue is that when properties appreciate, you end up paying more in property taxes.
Your property taxes will likely increase every few years as the value of your property increases. You should be prepared to pay these taxes and adjust your tenant’s rent fees accordingly.
Analyze the Cost of Insurance
Your mortgage isn’t the only thing you’ll have to pay for each month after buying a rental property. You’ll also have to pay for homeowners insurance.
Some people have to pay more for insurance if their home sits in an area prone to flooding or other natural disasters. Be sure to consider these factors when analyzing your rental property costs.
Understand That You May Have Vacancies
Once you find out how to invest in real estate, you’ll have to start calculating your rental income. It’s important to remember that you may have to go a few months without rent.
Vacancies happen, and you may be forced to go a few months without seeing any rental income. You should budget for a 10% vacancy rate as a general rule.
That means that 10% of the time, you won’t be receiving any rent payments to offset the cost of your mortgage.
Remember That You’ll Have to Pay Property Management Fees
When you’re learning about how to buy an investment property, think about what kind of costs you’ll be responsible for. Property management fees are one such cost that you’ll have to think about.
Generally speaking, property management fees can cost anywhere from 8-12% of the cost of the rent. That means you’ll have to subtract 8-12% of your rent price from your overall rent income.
Compare the Property to Others in the Area
If you’re wondering how to analyze investment properties, you can start by looking at rent prices for similar properties in the area. You can use these other properties to get an estimate of what you may be able to charge for rent.
Be sure to compare your properties to properties with the same amount of bedrooms and bathrooms. Remember to also look at houses that have similar features as your property, such as a backyard, porch, or garage.
Looking at comparable properties that are similar to yours will give you the best idea of how much you can charge for rent.
Factor in Maintenance Costs
Some people buy investment properties that need a little work. These properties require an upfront investment before they’re ready for tenants.
You can often save money by purchasing a house that needs work, but you will need to spend time fixing up the house. Houses that need work may have additional maintenance needs even after tenants move in.
You should always set aside a portion of your rental income to save for unexpected maintenance needs.
Think About Historical Rent Prices in the Area
It’s tempting to base your rental property purchase on the current rent prices, but you should also look at the historical prices.
When you’re thinking about how to evaluate real estate properties, you should think about what might happen if the market takes a downturn. What were rent prices like for your property during the Great Recession? What were they like during the pandemic?
You may want to take the average rent price over the past five years and use that as your expected rental income. This will give you a better idea of what to expect than simply analyzing the current rent price.
Reviewing the Best Ways to Assess Memphis Investment Properties
Be sure to consider all the factors mentioned in this article when you’re thinking about buying Memphis investment properties. Buying investment properties is a great way to generate passive income.
The key is to make sure you buy a property that can appreciate in value while also providing you with rental income. If you’re interested in hiring a property management company to take care of your investment, get in touch with the experts at Turnkey Investment Properties.