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What makes the best rental property investment? Here are the top 3 attributes to look for;
A healthy and profitable rental property investment will produce a 10% cash flow return. How this is calculated is adding up all of the expenses and subtracting that from the rental income.
For the expenses, include your mortgage payment if there is one. Next, add up the potential income. The income should be based on actual reports of rental income from the past year. If you can get more then the past year that is even better. Finally, subtract a percent for repairs and for maintenance.
The repairs should also be based on an average from past reports. If you don’t have any then estimate 10%. The maintenance should include a percent to cover the cost of a maintenance company and your time if needed. If you hire the right property management company then your time won’t be required. If you don’t have any numbers for this either then estimate another 10%.
Your rental property should be either close to where you can attend to it if needed or close to a property management company that you hire. If you’re going to conduct the maintenance then you need it to be close to where you live or work. Ideally, you are willing and able to hire a management company who will do the maintenance for you. It will cost you out of pocket but will save you a lot of time and time is money.
Select a rental property that is not ready to fall apart. The better condition the property is in the less maintenance you will need to pay into it. Properties that were a primary residence are good choices. These types of properties were usually taken care of by the previous home owner. The type of neighborhood the rental property is in will make an impact on how well it has been maintained. The previous owner has an impact as well.
If a property looks good be sure to have an inspection conducted so you are aware of any potential hidden repairs that will need to be made now or in the near future. Rental properties are owned by investors. If an investor is a flipper then they may not repair hidden issues that lurk behind the drywall.
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