As an investment asset class, property is the safest. This comes at a cost however, as the returns are generally modest – at least to begin with. Becoming a property landlord can also be time consuming and can lead to unwanted stress in return for what can seem like very little.
There are three considerations to be mindful of when it comes to investing in a property with the express intention of renting it out:
1. Predicted Income
Research the area, the average rental price, and assess the demand before choosing the rental price. Once you have done this, you can work out your gross income (before deductions).
As an example, let’s say you have purchased a property for $200,000.
You decide – after researching – to ask for $1,000 per month.
This means annually you will get $12,000, which equates to a 6% returns (gross).
2. Annual Expenditure
As a landlord, it will fall on you to maintain the property. This includes any repairs or replacements to crucial aspects of the property such as the plumbing, heating, general repairs from wear and tear, fences, roofing and flooring.
You will also be responsible for the payment of property taxes, landlord’s insurance, and any property management services you decide to employ.
These expenses eat into your annual returns, and as an estimation – including putting provisions in place for any large expenses such as boiler replacement for example, you may see your net return come in at around 4% annually.
You must also calculate the mortgage (if you have one) repayments and interest on an annual basis. These are all important factors to consider.
3. Other Associated Risks
You may not be able to rent out your property immediately, meaning that it will sit empty. If this happens, your returns are eaten into once again. If you do manage to rent the property, and are subsequently forced to evict a tenant, this could lead to expensive legal costs.
While your property will of course provide a steady income in return for the initial investment, it can eat up an awful lot of your time.
The project should be weighed up and analysed to ensure that it is worth doing in the long term. Maybe your time could be better spent on something else, maybe the returns are not good enough to warrant the initial outlay and the time factor.
It goes without saying that the more properties you own, the higher your annual take, but of course with this comes more stress and more issues to consider. If it was easy, everyone would be doing it.
The Alternative Option
An option which many international investors are taking up, is Full Service Property Investment. This takes care of every aspect mentioned previously, including the presentation of a variety of property options with calculated yields.
Often the properties will be new developments in areas of high demand, and the potential for returns from both the rental yield, and local market growth (for resale) are proving extremely attractive to those looking for portfolio diversification, or those who are disillusioned with the stock market.
As well as this, the task of managing and maintaining the property while it is rented, and even finding the right tenants, are both taken care of by the management company.
By removing the stress factor, and providing real growth and returns, it is easy to see why this option has grown substantially in popularity over the last decade.