Buying a home to rent out: how does that work?
Is it a good investment?
Buying a home to rent out is also known as purchasing aninvestment property. And for good reason: the average return on investment is relatively high. The actual return you get on your investment depends entirely on the circumstances. What was the purchase price of the home? For how much can you rent it out? Are there significant maintenance costs? All these factors determine how profitable buying a home to rent out can be.
Housing prices continue to rise at the moment. That’s why it’s important to look beyond just the rental income. You might be able to buy a home now to rent out and then resell it in a few years. In today’s housing market, you can often count on the property’s value increasing, allowing you to make a profit. So, do you have money to invest? If so, buying a home to rent out is an attractive investment.
What type of home is suitable?
If you’re planning to buy a property to rent out, it’s a good idea to think about the type of property you want to buy. In today’s housing market, buying an apartment is often the best choice. There are several reasons for this. For one thing, apartments are relatively cheaper. They require less maintenance, though they’re also smaller. This allows you to keep your costs down. At the same time, many tenants are specifically looking for apartments. A mid-sized two-bedroom apartment is exactly what many tenants are looking for. So if you want to buy a property to rent out, an apartment is preferable to a house.
Projects existing buildings?
In addition to the type of property, it’s also important to consider its condition. Of course, you buy a property to rent out in order to make money—preferably by spending as little time on it as possible. In that regard, projects are projects the best choice. These properties meet all current standards and will require virtually no maintenance in the coming years. That saves not only a lot of money, but also a lot of time. The property is usually ready for tenants right away.
Would you rather save on purchase costs? Then you might want to consider an existing property. However, this does come with significant drawbacks. For one thing, the risk of damage or maintenance issues is much higher. In most cases, you’ll also need to be prepared to do some repairs before tenants can move in. That makes buying a home to rent out a bit more complicated and time-consuming.
What are the associated costs?
Buying a property to rent out is a good way to make money, but only if the income exceeds the costs. To determine a fair rental price, it is therefore important to take all associated costs into account. You will need to pay not only the purchase price, but also registration fees, notary fees, and deed costs. On average, these three cost items amount to 14% of the purchase price.
In addition, there are recurring expenses. Some expenses occur monthly, while others are only occasional. If you are planning to buy a property to rent out, it is important to estimate the following expenses in advance:
Insurance
Maintenance costs
Any mortgage costs
Legal fees
How long does it take?
In addition to the costs, it’s also important to consider the amount of time you’ll need to invest in managing the rental property. Buying a home to rent out sounds simple, but communicating with tenants, arranging repairs, and resolving legal issues takes a lot of time. For example, what are therules regarding the security deposit? What should a good lease agreement include? And how do you actually find suitable tenants who will treat the property with care?
Answering all these questions takes a lot of time and research. That’s why some investors opt forproperty management. With this approach, you pay an experienced company to handle all these practical matters for you. They have all the practical and legal expertise needed to manage everything carefully. This makes buying a home to rent out just a little easier.
Are you thinking of buying a property to rent out and want to do your research before taking the plunge? Then check out ourbeginner’s guide, which contains everything you need to know about investing in real estate.