Listly by Joanna James
If done right, investing in rental property can be very lucrative. However, starting out as a real estate investor is rife with challenges. That is why you need to educate yourself on the subject.
This is the first question you need to ask yourself. As a newbie landlord, you need to be able to do certain things by yourself. Can you unclog a toilet or repair drywall? Of course, you have the option of hiring help, but the problem is that you will have to reserve a portion of your profit, which won't be a big amount at first, for these services. But if you know how to use a toolbox, you will be able to save a lot of money. The same goes for property developers in Sri Lanka. Until you have several properties in your portfolio, you should be able to play handyman.
If you have bank loans or children who are supposed to attend college soon, you might want to delay your purchase of a rental property. Someone who's been in the industry for some time might be able to leverage his personal debts against the investment, but a new investor shouldn't take that risk; a new investor might not be able to do what John Keells Properties can do.
Investment properties require a bigger down payment; this is usually more than what is required for owner-occupied properties – there's a strict protocol. For an owner-occupied property, the down payment is usually 3% to 10%, but for an investment property, the down payment is around 20% of the property value. You won't be able to get mortgage insurance for an investment property, but don't be disheartened; you can secure your down payment through a personal loan.
You don't want to invest a large amount of money in a property in the wrong location. You should choose a locale that's growing and likely to pick up the steam. A place with a revitalisation programme brings you excellent investment opportunities. When considering a location, you need to look at a few things: taxes and amenities like malls, parks, restaurants and movie theatres. Also, you should consider other factors like access to public transportation, the local crime rate and the job market.
You should be careful when borrowing money from banks. The cost of a house mortgage might be affordable, but the interest rate on a rental property mortgage is way higher. Maybe you are not too worried about that because you can use the rental income to cover the interest, but if this is your first rental property, you need to have a bigger portion of the profit for yourself so that you can invest in more properties. So don't let the interest take too much from your profit.
New real estate investors should think about getting landlord insurance. An insurance coverage of this nature covers lost rental income and property damage; it also offers you liability protection.
As a new investor, you might be tempted to go for a dilapidated property that offers you a good bargain, but it's not a smart thing to do. You may think that you can turn it into a livable rental property, but it's going to cost you a lot of money. You should only choose this option if you have someone who would do the renovation on a budget or you have the skill set required to renovate the property. It's totally understandable if you don't want to make a large investment at first. With a little patience, effort and time, you'll be able to find the right property at a reasonable price.
A true believer that the pen is a mighty weapon, ventures into reaching the minds of every reader with the earnest hope of leaving an indelible stream of thought.
A travel writer who has a passion for fashion and a deep interest in admiring new and exotic attractions around the world.