Rentals are a feasible way to make passive income. Families and individuals need housing, and renting out a place is the most accessible option for many. It’s easy to see why anyone would want to bank on this using their own property, but there are some important considerations to make before you call on your local mortgage broker.
You Won’t Break Even Immediately
Before putting in your money, know that the most common scenario is that you will be operating at a small loss for the first few years of renting out your property. You’ll be paying off your mortgage, handling utilities, and allocating money for fees, renovation expenses, and upkeep. Those costs will add up even as your renters consistently pay their dues.
You will need to calculate a rental fee that allows you to feasibly continue supporting the property and paying off your mortgage, but it can’t be so high that you just won’t get any tenants. This is why it’s best to calculate the expected cash flow and know that profit will come later on.
You’re Going to Want a Property Manager
Even though you can manage your rental personally, it can be difficult if you’re going to be handling multiple tenants and if you’ve got other responsibilities. This is why you may want to consider the expense of hiring a dedicated property manager. They can help you scout for tenants, post ads, and manage the daily operations of the location.
Property Depreciation Happens
As the economy fluctuates and new properties get built, yours will eventually depreciate in value. You may wonder why this is important if you’re not planning to sell it as a whole. How this affects your rental, however, is in regards to how much it costs to keep it up in congruence with how much you are earning from it.
Although we’ve mentioned that it’s natural to have to wait a while before the rental becomes profitable, what shouldn’t happen is that the property starts to cost more than it brings in over time. These factors will be crucial when trying to get deductions for your taxable income.
Finding the Right Property Takes Time
You can’t just purchase the first property you see. You’ll need to canvas to find the most ideal location that suits both your budget and the financial capability of your target renters. Then, you have to factor in the upkeep of the property and general costs of living in the area to see if it suits your plans. This time doesn’t even include the negotiations you’ll likely have to dive into as an investor in a populated market.
Remember that it’s also a good idea to get your pre-approval early so that you don’t have to deal with complications and extra paperwork later on. Loan refinancing often goes through more smoothly when buyers are able to confirm that they have the ability to match up to their promises.
Final Thoughts
2.6 million households in Australia are made up of renters, so it all comes down to getting the right place. If you can take these considerations into account before you buy your property, you can map out a successful plan to earn from it.
Mortgage Broker Home Loans specializes in providing the best mortgage deals and loan refinancing in Melbourne. If you want a lender that provides good value and the best deal available, make sure you reach out for a free quote now.
