Buying a
rental property could be an incredible investment opportunity, however, it’s
important to make a well-informed decision before investing, as it is not for
everyone. Although investing in a rental property provides many benefits, such
as a potential extra income, and a way of paying off the property, it poses
certain risks as well.
The
following should be considered when deciding whether or not to invest in a
rental property:
- Calculate
the upfront costs:
When you
purchase a property, there are several upfront costs that would need to be
paid. These include bond costs, attorney fees, bank initiation fees and
transfer duty. You need to be fully financially prepared before investing in a
rental property. In the case of applying for a bond, your financial
circumstances will be taken into account, as a means of determining whether or
not you will be able to service a loan.
- Calculate
the ongoing costs:
After the
property has been purchased, there are several ongoing costs that need to be
considered. These costs include rates and taxes, insurance and maintenance.
- Vacant
rental properties:
If your
rental property is empty for a period of time, you need to ensure that you have
the funds to cover the costs of your rental property. You cannot depend on your
rental property generating an income 24/7.
- Rent:
The amount
of rent you can charge your tenant per month will depend on factors such as
property type, amenities, etc. This should play a vital role in your decision
when buying a rental property.
- Rental
agreement:
Before a
tenant moves in, you need to ensure that you have a very strong rental
agreement in place. This agreement will protect the property owner in the case
of disputes and damages to the property.
- Taxes:
The rent
that you receive from the tenant, is not meant to go straight to your pocket.
Tax law states that the property owner needs to pay tax on the rent received
from the tenant.
- Potential
tenants:
When looking
at potential tenants, it is of vital importance that the owner vet all
potential tenants, in the form of credit checks, background checks, etc.
The
above-mentioned points should be considered before investing in a rental
property. As mentioned, it could be a sound investment and provide you with a
potential extra income once the property has been paid off, however, if not
done right, it could cost the property owner dearly, so be sure to make a
well-informed decision before investing.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)