Purchasing a property to lease out can be a great way to earn passive income. However, this type of investment is fraught with risks. At the current moment, due to the COVID-19 pandemic, the real estate market has been in a slump. If you are looking to earn good money through this type of investment, there are several factors that you should keep in mind before purchasing a rental property as will be discussed in the article below.
First, it is recommended that you avoid taking a loan to purchase a rental property. If you are already saddled with other financial obligations such as fees for your kids, using loan money to buy a buy-to-let may not be a savvy investment. This is because the property market is always fluctuating. You may think that rental income may cater to the loan you took to purchase your property but when there is a downturn in the market, you may end up having financial obligations you cannot meet.
It is also important that you ask yourself if you have what it takes to be a landlord. Tenants tend to have a lot of demands and needs and it will fall on your shoulders to meet their expectations.
If you are looking to make this type of investment, you should also carefully consider the area where you want to buy a home. Remember that the attractiveness of your home to prospective tenants will be determined by its location, Thirlmere Deacon provide a fantastic consulting service that will help you determine the tenant profile of your property. If you are looking for a profitable buy-to-let property, consider purchasing a house in a locality that has low property taxes, plenty of amenities, highly rated school districts, and a high safety rating.
If you are thinking of becoming a landlord, remember that the onus for carrying out repairs and maintenance within the property will fall on you. It’s advisable that you set aside some money for any emergency repairs that may arise such as repairing leaking roofs or plumbing issues.
Before sinking your cash into a buy-to-let property, ensure that you calculate the margins that you will earn from the property. Remember that your net margin should not take into account any expenses that may arise such as costs of carrying out repairs and maintenance.
As a prospective landlord, you should also ensure that you understand tenancy laws in your locality. Landlords who have been slapped with lawsuits and hefty fines simply because they did not understand basic tenancy laws.
You should also be prepared to carry out extensive background checks on your tenants. This is the best way to avoid problem tenants or shady individuals who may end up damaging your property or getting you into trouble with the authorities.
When buying a property to lease out, you should also set aside cash to acquire a comprehensive insurance cover. You should not only insure your property but also yourself. With insurance, you are sure to get indemnification in case your property gets damaged. You will also have a financial cushion should you get sued by your tenants.
Top Benefits Of a Buy-To-Let Property
• This type of investment requires very little work on your behalf. This means that you can go ahead with your regular job while you earn a passive income from your property.
• Barring the occasional market turmoil, properties tend to rise in value instead of depreciating. If property rates rise, then the value of your investment will also increase.
• In many jurisdictions, money that is earned from rental properties is not usually included in your overall income meaning that it is exempt from social security taxes.
• If you financed the purchase of your buy-to-let property through a loan, you can get tax refunds on any interest levied on your loan
• Since your rental property is a tangible asset, you can always use it as collateral should you run into financial headwinds
Risks Associated With Buy-To-Let Properties
• Tenants can sometimes fail to pay their rent on time
• The income that you get from your rental property may not be enough to cater for any loan that you may have taken to purchase the property
• Even if you do not get any tenants in your house, you will still need to pay taxes as well as cater for any other expenses that may arise
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