Real estate is almost always a wise investment, but if you want to invest specifically in a property with a rental income, you need to shop carefully. Unfortunately, not all properties have rental income potential, even if they are in great shape or at a great price. Finding a property with rental income potential takes research and care, but when you find the right one, the potential long-term investment is excellent.
A rental property that is worth investing in is one that will have good income potential. If you want to add more rental properties to your portfolio, Henderson Investment Group can help you find properties with rental income. We are a full-service real estate firm specializing in turnkey properties, giving you rental income without the stress and hassle of spending a lot of time preparing and managing your rental properties.
If you are considering your investment options, one way to determine if a property is potentially lucrative is with the 1% rule. This rule states that the monthly payment for the property must be at least 1% of the purchase price. If it is less, the property will not be a profitable investment. So, if you are purchasing a property for $200,000, it should have an estimated monthly rent of $2,000 or more. Keep this rule of thumb in mind as you weigh your investment options.
If you find a property that already has been a rental property and that falls below the 1% threshold, you can consider offering less for the purchase price. Keeping this rule in mind gives you a better chance of finding a property that will bring a good income.
That said, the 1% rule is not perfect. For example, there can be properties that make a good investment but do not currently follow the 1% rule. For that reason, you need to work with a professional team to help you analyze the potential income of any investment you’re considering.
Potential investors often ask whether or not they need a 20% investment for a down payment on their property. While a home purchase for your personal home may not require the conventional 20% down payment, most investment properties will need a 15 to 25% down payment to get low-interest rates. However, there are options real estate investors can use to reduce that down payment, but it is harder to do with investment properties than regular properties,
With investment properties, lenders want to see that the borrower has some reason to stick with the property if the investment doesn’t pan out as expected. Because the investor is not living in the property, a higher down payment is the best indicator that they will take their investment seriously. If the loan-to-value ratio is high, the interest rate and loan fees will also likely be higher.
In addition to the 1% rule, you can look at the capitalization rate or cap rate. This rate is the difference between the net operating income from the home and its property value. You want a cap rate between four and ten percent, which indicates a potentially profitable property.
It would be best if you also looked at the diversity of your portfolio. You want a highly diverse collection of investments, including different geographic areas within your city and properties in different price points and demographics. Diversity gives your investment portfolio stability, even if the demand for rental properties changes.
Finding a property to invest in can be a complex process, but help is available. If you are looking at a potential investment property with rental income for sale in your area, Henderson Investment Group can help. Our team offers a turnkey system to help you find and acquire potentially lucrative investment properties.
Our team will take the time to determine your investments’ goals, then uses a proprietary discovery system to match properties to those goals. If you decide it is a good fit, we will help you negotiate a purchase price to maximize your investment. Next, we help with renovating and marketing the property, and then we assist with the management and maintenance. Through the process, you can be confident that you have the right help to maximize your investment.
From choosing the right investment property to buy to ensuring you have the proper down payment for it, Henderson Investment Group is your property management team. Reach out today to discuss your investment goals with a Henderson agent today.