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Do your arithmetic right before buying a rental property for the first time

There should not be any doubt about the benefits of investing in property. Some of the world’s wealthiest people have made their fortunes in real estate. Like any other investment, there are risks in real estate investment. Besides proper education and knowledge about the industry, you need proper guidance from experts who act as buyers agent Brisbane to help you navigate across the real estate landscape smoothly.

Because it is an investment property, besides choosing the right location, you must consider several other factors that impact the property price to get some idea about the projected price that it can fetch in the next few years. And this is where the agent makes all the difference by providing valuable inputs that help to see the future of the investment.

Before setting your eyes on investment properties, do some arithmetic to stay prepared for availing investment opportunities.

Be cautious about debt

If you are a first-time investor in real estate investment, you must be careful about managing existing debts and preferably keep away from it. Purchasing a rental property when you are carrying some earlier debts is not at all recommended. However, if you are confident that the return from the real estate investment is higher than the cost of debt, then you can continue with it. But make sure that you have the cash to service the debt accounts.

Have money for the down payment

Down payment for investment property is much higher than occupied properties, and it can be as high as 20% as compared to a 3% down payment that you had made for buying your first home. Moreover, mortgage insurance is not available for an investment property. Keep the cash ready so that you latch onto any opportunity that comes your way.

Calculate your margins

Having an idea of the costs that you must incur for keeping the property is a factor when you calculate your margins. Pegging for a 10% margin is a fair target. Keep in mind that the annual maintenance of the property will cost you 1% of the value. There will be other costs like property taxes, monthly expenses for pest control and landscaping, insurance, and maybe homeowner’s association fees.

Stay away from high-interest rate

The interest rate on your borrowings is a critical factor that affects your margin, and you must look for the lowest interest rate by doing some shopping. Although the cost of borrowing is relatively low, the interest rate on an investment property is higher than the interest rates applicable to a traditional mortgage. Choose an interest rate that has minimal impact on your margins.

Calculate operating expenses

Operating expenses of your new property can be between 30% and 80% of the total or gross operating cost. If you are renting out the property, then calculate first to ascertain that you can keep operating costs as close as possible to the lower limit to protect your margins.

Finally, if you find that you can earn a 6% return on the investment in the first year of renting it out, it signals a good start as the number should go up with time.

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