If you want to be financially free, then investing in a rental property is one way to go. When you have a desirable rental property, you will have peace of mind, security, and control over your finances. However, it can be difficult to understand the right way to go about this process.
First, you will need to set a budget. When you are renting out a home, you might want to go with the lowest priced one so that you can maximize your profits. However, the price of the home is not everything. You will want to focus on how the numbers will work out after considering the monthly income compared to the property’s price. A higher-priced home will generate you more income.
For example, consider a home that costs $200,000 that can give you $2,000 of income each month. If it does not need any repairs, it can be a better value than a $150,000 home that brings in $1,300 each month and needs repairs. If you need to borrow money to make the repairs, it will end up costing you even more because of the interest.
You will need to figure out the net operating income (NOI). You will do so by subtracting your operating expenses from how much you anticipate bringing in each month. Next, you will want to measure the cap rate. This is the annual net operating income divided by the price that you paid for the property. You can multiply this number by 100 so you get a percentage. A higher percentage is better for the cash flow.
Often, a single-family home can attract a family who wants an affordable and secure neighborhood. If it is close to a school or a workplace, it is even more likely to attract them. However, this also means that you are only getting one rental check each month from the property.
Some people would rather offer a condo or multi-family home instead. This offers the potential for multiple income streams each month. If a tenant moves out and leaves the unit empty, you will still have other incomes until you can rent it out again. But dealing with multiple properties also means that you will need to spend more time on your properties.
It is also more likely that you will need to pay for repairs and have more frequent tenant screenings. The up-front costs of multi-unit homes or condos will be more costly in both money and your mental energy as well. It is often less expensive to purchase a single-family home in that neighborhood. However, if you want to put in the extra work, then it can be rewarding.
These are just a few of the many things to keep in mind when you are investing in a rental property. If you would like some more advice about investing in rental properties, please contact an expert from the Washington Equity & Funding Corp team in Great Neck, New York.