Investing in a rental property

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:

1. 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.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.