The potential to benefit from cash flow and equity increase is a great benefit to having a rental income property. When you are ready to search for a profitable property, be sure you follow some rules. Here are some tips to help you when you are ready to buy a rental property apartment home.
Single Versus Multi-Family
When you first begin to look at real estate for the purpose of investing in an income property, there are several choices you can make in the direction you want to go with a rental. For example, you can buy a single-family home, which you can rent out to one family, or you can look at a multi-family property. A multi-family property can be anything with two units or more. This may be a duplex, triplex, four-plex, or larger, such as an apartment complex.
The amount you pay for each type of property will vary with the number of units it has, but the amount of rent you can collect is potentially increased as well. And you will need to consider this fact as you analyze each rental property as an investment.
As you consider this decision, talk with your real estate agent to get some help with calculating cash flow. Also consider the fact that if you own a four-plex, the overhead costs, such as yard care, roof replacement, and other maintenance tasks, will be combined, which will reduce the property's expenses and can put you further ahead to have a positive cash flow. For example, if you own two single-family properties, you would need to pay for two separate yard care expenses and have two rental incomes. But if you have a duplex, you still have two rent incomes but you only have one yard to take care of.
Set Your Rental Price
The price you ultimately choose to charge for your rental home does not depend on how much your mortgage payment is. The cost of your property's debt service is not tied directly to the market rent rate in your area. So before you get a buy property you will need to make sure that you can charge an appropriate amount for rent to cover your costs. You don't want to set your rent at too high, as it will seriously affect your vacancy rate.
The rent rate in an area is determined by the market and how the local economy is doing. For example, if the city you are looking at has been in an economic boom for the past few years, the rental rate will be slightly higher, but the cost of real estate is going to be higher as well.
It is important to check around the area to get rent rates for the types of properties you will consider investing in. With this rent rate, you can analyze the cash flow for the property and decide if the rent will cover the property's expenses. Talk to your mortgage lender about calculating an appropriate mortgage payment amount to help you successfully complete a cash flow analysis. If the property does not create a positive cash flow for you, it is not worth buying.