Investing in Rental Properties – Income Potential

Investing in rental properties can be made less risky if the income potential of the building or structure is thoroughly analysed before any concrete steps towards purchase is taken. The analysis should cover the following points:

* The investor’s financing strategies should be manageable – i.e. check whether he or she can afford it!
* Discuss with local rental property owners about their experiences in the market and also consult accountants, legal functionaries, real estate brokers, people handling land registry, insurance, taxation, etc. to get as much information and details as possible.
* Find out what the market values are for different properties in a particular area and what kind of discounted rates are possible on these.
* Remember that there will be vacancies which may linger for months, leading to lower income than envisaged. Also consider that some tenants will be unable to pay the rent at times or for months together – which may even require eviction. Collect and set aside all the security money you take from tenants – investing the amount to get additional income from the interest is a good idea. Base your estimation of the total income from the property on realistic rather than ideal situations.
* Consider the total expenses – mortgage payments, insurance, hiring staff to maintain the building(s), utilities, maintenance and repair – both regular and emergency, advertisements to get new tenants, improvements, misuse of free facilities provided to the tenants, etc. This will give you a fair idea of what the total costs of purchasing and holding on to the property is going to be.