Buying a Rental Property Investment – What Are the Keys to Making an Informed Decision?

I can remember my mother drumming into me from a very young age;

“Save your money, get a deposit and buy a house. You can rent it out and the tenants will pay it off for you.”

Things were much simpler back then and there were no complicated property trusts, very few bodies corporate, water was free, and interest rates both low and fixed.

So in general you needed to do a lot less homework before you could see if the numbers added up. You also weren’t seduced by properties in beautiful resort locations with swimming pools, gyms, access to the beach, and the thought of being there on holidays and renting it out when you weren’t there.

So if you are thinking of buying a rental property investment, there are a few key points of which you need to be aware.

Firstly do your sums. You need to know how much money you can afford, how much money you can borrow, what the potential rent will be. Are you going to get a mortgage? Will the lending institutions loan on that particular property?

In some countries there are particular construction types on which lending institutions are unlikely to provide finance. In other areas there are issues with various types of titles, particularly company titles, where the lending institution is unable to take a lien over the property, so won’t advance money.

Be aware of seminars and forums that promise you untold wealth and fortune by buying properties through them. If it were that easy they might not need to run seminars for a living. That’s not to say many of these property seminars won’t provide you with a wealth of information, often they will, but I have seen too many people caught up in the enthusiasm of the moment. Then they rush in and buy before looking at all the options.

Of course there is also location, location, location, it doesn’t matter whether it is where you would like to live, or where you would like to invest. The location is of prime importance. At the end of the day, depending on the type of rental property investment you purchase, you want to buy a property in which other people want to live or holiday. So it needs to fulfil all the requirements of as wide a market as possible. Close to facilities, schools, shops, entertainment, or if a holiday rental, the beach and tourist parks.

There are two further critical points for you to consider. The first is not to confuse your holiday plans with your investment. They should be two completely separate strategies. If you end up at some stage with them coincident, then fine, but it must be for the right reasons. Your strategy for your holiday is probably that you want to see, or be in a particular place at the lowest cost. The strategy for your investment should be about making the most money at the least risk.

See the obvious pitfalls here?

You will want to be in your holiday rental property in the prime time when everyone else is going to pay a premium. Ask yourself if you would be prepared to pay as high a tariff at that particular location, at that particular time, as you intend charging. If the answer is no, then for every holiday you spend there you are effectively losing money, money that someone else will pay.

The second point is that it is often a good idea to have your investment close by where you live so you can keep an eye on it. Whilst there are many good letting agents out there to look after your property, owning an investment that you drive past on your way to work, can provide you with a measure of comfort. There are also other advantages. It is probably an area you know quite well, and will therefore be more closely attuned to both the rental and sales market in the area. Likewise you will likely be more aware of other potential investment opportunities in the area.