Many first-time investors struggle with obtaining that first rental. Understandably, they deal with analysis paralysis. What if this fails? What if this is a mistake? The self-talk goes on. Below are two simple questions to ask to help evaluate whether the property you are considering is a good rental.
1️⃣ Is It Easily Rentable?
This question addresses the risk of your house sitting, subjecting you to holding costs. If the house is in a desirable neighborhood, side of town and city and demand is high for the type of house, floor plan and size, then your risk of vacancy is much lower than if there is low demand. A home that is highly rentable is vacant for a shorter amount of time and gives you a good pool of potential residents, allowing you to raise your standards for a high-quality tenant.
2️⃣ Will The Rent Easily Cover The Mortgage?
Put simply, this question addresses your cash flow risk. If rent easily covers the mortgage (including any expected increases in escrow due to higher taxes and insurance), this lowers the risk of the property being an altogether bad investment. Of course, you want the property to produce much more than the mortgage obligation, as there are operating expenses, improvements, property management and a desire for profitability when it is all done. However, this helps a first time investor understand very quickly whether an investment will work or now.
Using Data for Decision-Making
If you are nervous about the prospects of an investment. Remember this: 1) No one is making you make this decision. 2) Use data to help you make the decision. If it does not make sense based on the above criteria, it may not be the investment for you. Take your time, save and have a big vision!
Safe Investing!
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– How To Use Your 401k To Invest In Real Estate
