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Making the Most of Your Rental Property Investment

Even with the recent gloomy news about the future of the housing market, Jason Hartman advises that owning income-generating property is still one of the most financially sound investment decisions you can make. But in order to maximize your return on the property you purchase, it’s wise to plan ahead, starting with a picture of ideal tenant you need to keep the passive income flowing.

When purchasing real estate for investment, you’ll want to consider the same kinds of factors that would influence buying a home for yourself: condition, location and price. But when you’re evaluating a piece of property for its income-generating potential, it’s essential to switch perspectives and consider the property from the point of view of a renter.

Real estate experts point out that the best types of income generating rental property are single-family homes or condominiums. Knowing the kind of tenant who will be living in the kind of dwelling you buy can help ensure that the property will yield the best return on your investment.

Location plays a key role in the purchase of any property, but it also reveals important information about residents and their circumstances – with implications for your long-term cash flow. Condominiums and houses near colleges, for example, are likely to attract student renters. This can mean seasonal vacancies in summer or around the end of the year. What’s more, this renter profile might imply issues with paying rents on time, as well as property upkeep and damages.

The condition of the neighborhood and its amenities also offer clues to the stability of your rental income. If the neighborhood is run-down or remote, rents will be low and renters may be transient. Is the property near schools or daycare centers? Renters may well be families, suggesting stability and a willingness to maintain the property, minimizing your risk. Near an urban center or trendy shopping area? Young professionals might be renting a home or condo until they can buy one of their own, suggesting turnover and periods of vacancy.

The condition of the property is always a prime factor in the purchasing process. Viewed from the investor’s perspective, the property’s condition will affect who is willing to rent it, as well as what kinds of potential problems may arise in the future. The costs of repairs, renovations and upkeep, as well as the amount of rent to charge for the neighborhood, all affect the potential return on your investment.

The amount of rent you can expect the property to generate over time is an important consideration, too. Does the location and condition of the property make it possible to attract the kinds of renters that will allow you to generate significant, steady passive income? Will you be able to set rents that are comparable with others in the neighborhood?

Buying a fixed-rate mortgage investment property is a smart strategy to create a retirement income stream. But that stream depends on renters. Matching your goals with their needs and circumstances can help to minimize your risk and keep that stream flowing smoothly. (Top image: Flickr | Chris P Jobling)

The Heroic Investing Team


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