What to Know Before Buying a Rental Property

If you’re looking for a way to generate passive income and obtain financial freedom, buying a rental property is the way to go. Use these tips from our financial experts at Vinings Bank to help you learn more about purchasing a rental property.

4 Factors to Consider When Buying a Rental Property

1. Income Potential

Before jumping headfirst into buying a rental property, you need to consider the property’s income potential. Rental properties that do not generate substantial income will become a financial detriment, and it could also prevent you from investing in other potential properties.

We suggest following the one percent rule, which states the monthly income that’s received from tenants should be equal to or exceed one percent of your rental property’s total value. For instance, if your rental property is worth $200,000, this property should generate at least $2,000 per month as rental income. You need to keep in mind that your monthly income needs to cover the mortgage payment and have some money left to create financial padding.

2. Location

The location of your rental property is also essential for attracting potential renters. Renters want a place they can call home that is close to shopping centers and different activities. Attractive neighborhoods are also in proximity to quality schools, public transportation, and community banks. When tenants aren’t forced to travel across town to handle their financial needs, and they have access to parks and other amenities in a safe neighborhood, you create a safe haven for your tenants.

3. Consider Your Ideal Tenant

To help you quickly rent your property, you need to consider your ideal tenant. Think about whether you want to rent your property to one person, students, or families. Keep in mind your ideal tenant will be influenced by your budget. Individuals and students who are interested in renting a property will look for a smaller property that is already furnished. Properties that feature multiple bathrooms would be a plus for student renters. Families who want to rent a property often have furniture, need more space, and desire various amenities. It’s important to make sure your property meets the needs of your ideal tenant.

4. Plan for Contingencies

Things will happen that you may be able to prevent, and sometimes situations are beyond your control. We suggest planning for mishaps and unfortunate events. Your rental property may remain vacant and won’t provide income. When your rental property is not generating revenue, you’re responsible for paying the bills until the property is occupied. When emergency repairs arise, you’ll be glad you set the money aside to address the problem immediately.

It’s best to have a savings account at your community bank to set aside money for instances when your rental property is vacant and still needs to be maintained.

Disclaimer: Vinings Bank has made this blog available solely for informational purposes. Its content is general in nature and does not constitute professional advice. Furthermore, the views expressed in this blog are not necessarily those of the bank, and Vinings Bank does not make any representation or warranty as to the accuracy or completeness of the information contained in this blog. Any liability, therefore, is expressly disclaimed. The information in this blog may not be current, and Vinings Bank does not undertake any obligation to update such information. No part of this blog may be reproduced, redistributed, published, copied, or duplicated in any form without the express consent of Vinings Bank.