Investing in rental real estate is about investing in the future by building up wealth and securing additional income. But to make this investment a success, it is better to ask the right questions and refine your project before embarking on the adventure. Here are 5 tips that will guide your thinking and help you better understand the key points of a successful rental investment.
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Tip # 1: Define the Purpose of Your Rental Investment
Buying an apartment or a house in rental investment logic can meet different objectives:
- To build up a heritage
- Transmitting a property to future generations
- Benefit from a supplementary income
- Reduce taxes
Depending on the objectives defined, the search criteria may vary. The location, for example, will certainly not be the same if you buy from a heritage perspective or from a tax abatement perspective (in which case the property must be in specific geographical areas, defined by the state). It is therefore essential to carefully define the advantages you want from your rental investment, in order to ensure that the property found meets all the criteria related to it.
Tip # 2: Choose the Housing Typology to Avoid Turnover
Some types of apartments are rented in the short term. This is the case of studios or two rooms located in the city center, which often host students or young couples who will soon want to expand the family. Even if investing in these dwellings can be a good calculation considering the ratio of affordable cost to comfortable rent, this implies substantial management. Because to multiply the number of tenants, it is also to multiply the steps (search of tenants, leases, inventory of fixtures …) and the possible renovations related to tenants who are sometimes not really concerned with their temporary living environment.
I advise you to turn to surfaces and housing typologies sought in a long-term perspective. The ideal for a rental investment? A 3, 4 or 5-room apartment with well thought out interior spaces (large living room, sleeping area, separate toilet), pleasant exteriors without requiring a lot of maintenance and reasonable charges. A sure-fire treat for young couples looking for a cocoon to start their own home, just like for a classic or single-parent family. Tenants with stable lives, who will certainly pose their bags in a prolonged way.
Tip # 3: Bet on an Attractive Location
Location is one of the key points of any real estate purchase. In the context of a rental investment, it is important to focus on the main criteria of research for a rental target:
- Close to shops, school facilities and leisure facilities
- In a town / neighborhood where life is good
- With easy access to the main roads (without suffering any nuisance) and public transport
Tip # 4: Accurately Estimate the Purchase Price and the Rental Price
Well located, your home should have no trouble to rent (or even sell if you want to separate in a few years). Yet it must be at the right price for the tenant, as for you. That is why it is important to accurately evaluate the purchase price and to think in parallel with the future rents that you will be able to release. Obviously, the ideal is that monthly loan payments are, at least, equal to the rent collected each month. To your calculations!
Additional advice: before you start buying, pay attention to the condition of the property and any work that you must do before renting.
Also beware of high loads, which could scare tenants.
Tip # 5: Choose Your Tenant
Main advice for choosing a tenant: check your income. To ensure his solvency and the fact that he can still live a quiet life after paying his rent, he must earn at least 3 times the price of rent. To check this point, ask for a copy of his last 3 payslips, his employment contract and his latest tax notice.
In order to limit the risk of non-payment, the ideal is to favor people on permanent contracts or students (who benefit from housing subsidies and support from their parents). This does not mean that people in a more precarious situation (fixed-term, temporary …) are not good payers. You are free to rent your home to this type of profile, who are often the first to honor payments to prove that the system is unfair. Be aware however that insurance will not follow you on the guarantee unpaid rent.
To note, the cost of an unpaid rent guarantee is on average from 2 to 4% of the annual rent. Although there is usually a one-month deductible and it does not cover more than one quarter, this insurance remains a good guarantee.
You can also delegate the management of your home to a rental management company for an investment under the sign of tranquility.