What You Should Know Before Investing in a Rental Property

Posted by Anna Johnson on April 18th, 2023

A rental property can be a tremendous investment opportunity for the right person and can set you up for a prosperous financial future. 

There are several reasons for this. Buying a property and renting it out to tenants not only earns you a passive income every single month - which means you might not even have to hold down a full-time job - but it can help you pay off certain types of mortgages or loans you might have on the property.

As a result, you can eventually move into the house yourself once the payments have been completed, essentially using your tenants to help you pay for your property.

Furthermore, real estate is arguably easier for first-time investors to understand and offers a (literally) concrete alternative to the complicated fluctuations of stocks, shares, and commodities.

However, this is not to say it is a rock-solid option and will require your due diligence before any commitment can be made.

To help you get started, here are some points you should know before investing in a rental property:

Have a Trusted Maintenance Team on Standby

Investing in real estate can be a compelling option to consider for all the benefits we have listed above, but it can also be riddled with hidden challenges and costs.

One of the most arduous issues you will undoubtedly face with owning a rental property is maintenance issues.

Every house is a physical entity under your direct control. Unlike a stock or commodity you have zero control over, your house can suddenly spring a problem.

It is your responsibility to sort it out immediately - especially if it puts your tenants' quality of life or health at risk.

Unless you have buckets of free time and an incredibly broad range of manual skills, the best way of tackling this is to have a team of trained and trusted professionals on standby.

For example, if you operate out of Melbourne, then you should have the Best Plumbers in Melbourne on call whenever you need them.

Your Profit Margins Will Be Narrow

Another negative factor that first-time property investors don’t often consider before taking the plunge is that there are likely to be narrow profit margins.

As we have already referenced above, unlike many other investment options, your property will require steep running costs.

Even if the bills are being paid for by the tenants, you will still need to factor in various property taxes, maintenance bills, any costs of renovation, and other hidden costs that will crop up along the way.

These will eat into your profit margin, so be prepared for it.

Aim to Add Value to the Property Yourself 

One of the best approaches you can take to owning a rental property (or any property for that matter) is to inject value into the property yourself.

The clearest example of this is if you bought a shabby, unloved house and replaced the flooring, painted the walls, and knocked through some rooms to create a more desirable property.

Not only will this appeal more to tenants, but it will boost the resale price.