As you continue to progress through life, building your wealth and growing your income, one of the areas you should consider is real estate, especially as a means of generating an additional income stream through rental income and leaving investment property for future generations.
New ideas are coming up every day allowing almost anyone to earn rental income, we now have platforms that let you rent out your spare rooms for a fee, even your couch can be rented out for a fee. People can now use their living spaces for short Airbnb stays and invest in rental properties for short stay or long stay rentals.
Here are some quick tips to help prepare you to earn rental income.
- Understand your goals: Are you looking to invest for a long or short term? If you invest in purchasing a property, the average rule of thumb for making your money back from rental income is about 15 years. Property isn’t a get-rich-quick scheme. The only way to reduce this time is if you sell the property and even this is affected by the second point we will look at.
- Location, location, location: When it comes to choosing where to invest, location is the primary consideration. There are some areas that will never fetch beyond a low rental amount because of the location. Likewise, there are other areas that may not be prime location now but will go up in value due to infrastructural developments. Do your research and find out what the going rate is so you can calculate if it’s worth your while.
- Funding: Before you purchase that property do the math! How much does it cost? When are you going to recover your investment fund and start enjoying the capital? What is the total cost of having this property, fixing it up and maintaining it? Do the numbers match your financial plans and progression? Using variables like inflation, migration, and devaluation, does this property still look like a good investment? Are you using your own money or are you getting a mortgage? If you’re getting a mortgage, ideally the rental income should cover your mortgage repayments plus a small buffer. You need to have the answers to these questions before you part with any funds.
- Ownership: Make sure you have the title deeds to whatever property you’re buying. If it’s an existing property, find out if there are any back taxes to be paid, because you will be liable for them once you purchase the property. Also, are you buying the property in your own name, or in a company name so it’s easier to sell or transfer ownership to a third party?
- Don’t skimp on the paperwork, get a lawyer: Don’t just pick stuff up from google get a lawyer who can help you review and/or prepare all agreements, contracts (especially the tenancy agreement) before you part with any money. The tenancy agreement is very important as this tells your intending tenants what each party’s responsibilities are. This will include whether they can sub-let, what type of maintenance they are responsible for, how often you want to perform an inspection of the property and other key areas. When you do get a tenant, don’t be in a hurry to grab the money, sign the agreements First!!
- Vet your tenants: Do as many background checks as possible – can this person afford to pay your rent (and management fees if any) beyond the first year? Is he/she of questionable character with the potential to bring you a lot of stress?
- Accounting and Bookkeeping: Keep proper accounts from the start. You must keep accurate records of all income and expenses in order to monitor the rental property activities, to prepare financial statements, and to see how profitable your property is.
Rental income is definitely not a get rich quick solution, but it is a sure way to invest long term not just for yourself, but also for your children and future generations.