How to buy a rental property

Buying a property is quite challenging as well as interesting.

I often see my friends who invest a good amount of their savings and extra incomes on fixed assets for their future security. I got to know from their experiences and observations, that not all investments will give fruitful returns and mental peace. Instead, some prove to be quite a big headache and stressful in the long-run. Here are some of the key points to consider before jumping into such investment pools.

Check out the budget for investment

The first and foremost thing that needs to be examined is, the budget (how much fixed and how much floating) one can shell down on the long-term investment. No real estate investment can be short-term. So, before initiating blocking the money for a good span, one needs to think a lot and plan meticulously. Because, it is observed many times, emotionally investing in long-term investments such as property, will land the economic situation in a very tight position, and may leave no option but to re-sell them at loss to overcome the financial stringency. Therefore, never plan for property purchase with a half-hearted approach.

Secondly, it is advised to buy property on outright cash down or down payment method, instead of EMI schemes. The EMI schemes will keep the investors on tenterhooks always and maybe a toll on their finances as well as mental health.

Once decided on the budget, self-evaluate the kind of property one can handle with ease. Financial returns do play a significant role, yet maintenance and other routine hick-ups leave the investor in trouble and will not make him enjoy the returns of such property. Moderate returns with mental peace are better than higher returns with high tensions and regular chaos to deal with. For example, if a studio apartment is available for 10,00,000 in any downtown that can fetch a rental value of say 10,000 per month, and for the same value a shop in a commercial venture is available in the nearby shopping complex whose rental value maybe 15,000 and above. For a cool investor, the first option seems better compared to the second. And for a risk-taker, the second seems better. So, depending on the personal choice, one can choose and deal with such challenges.

The third most important yet ignored by and large is the quality of the property, the material used in construction, the location where it is situated, adjoining facilities etc. While checking on the nearby areas, important facilities such as schools, entertainment parks, playgrounds, shopping malls, accessibility to public transport and other living conditions of the area are very much significant. If these are poorly furnished by the municipal authorities, the rental value of such location and property may not be as expected. Contrarily, some locations appear mild but the planning and execution of local authorities ensure fast development and hence pick up the value unassumingly. Such locations prove to be like jackpots to even low investors often.

The fourth important issue that needs to be verified by prospective investors is the ‘rates of property taxes in that location and appropriated on such properties. Some properties' face value will be low but eventually, the taxes and other indirect developmental charges make the overall investment be higher compared to those locations where the face value is high but the other indirect costs may be very minimal.

Fifthly, the very purpose of the property investment is to ‘rent out’ and thus, the location must be moderately populated if not densely populated with inhabitants. Property cannot be rented in deserted areas unless it is a commercial one inviting some warehouses and other food storage complexes which are usually built away from residential areas.

The sixth point is that there must be room for improvement in the property. The frequent cosmetic and physical changes to the property may fetch increased rental value and would also keep up the property for a longer period.

Such upkeep and regular maintenance will eventually increase the market value in the long run and can even be disposed off quickly at times of necessity compared to poorly maintained property.

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