Investing in real estate seems like it would be relatively simple. All you have to do is buy property in a good location, find the right tenants and start receiving rental payments.
With real estate, there is an assumption that when you buy a home, renovate it and sell it, you are abe to get a higher price for it. Unfortunately, this is not always the case.
In the event that your property is not sold as quickly as you expected, you end up with an inactive asset. However, renting out that property can not only be a solution to this but also be a smart real estate decision.
However, before you purchase a property and put it up for rent you must consider the merits and demerits of owning rental property.
Advantages of Rental Properties
Many Kenyans are eager to invest in rental properties as compared to other long-term investments. This is because it is widely believed that renting out a property is a stable long-term investment. But the truth is, any investment has its own level of risk. When you invest in a rental property:
- You can generate a recurrent income: This is money derived from the rent you charge your tenant. The money represents a passive source of income; you did not physically work for it-you property generated the money.
- You can gain leverage: Rental real estate can be bought with borrowed money. Therefore you can buy a rental property by paying only a fraction of the total value. For a percentage of the total cost you will own the property and the equity it possesses. However, it is important to note that the property you buy secures the debt and not your personal assets.
- It can appreciate in value: If you own real estate in an urban area, more often than not, the value will increase over time. Bear in mind that this not always guaranteed and the reverse can occur due to certain factors.
Disadvantages of Rental Properties
The potential downsides to owning rental properties are:
- Unexpected costs: Things such as fixtures, plumbing, and boilers usually need replacement.
- Uncooperative tenants: These are tenants who damage parts of the property and are late in rent payments.
How to Effectively Run Your Rental Properties
In order to minimize the disadvantages of owning rental real estate, there are a couple of strategies you can adopt to reduce your losses. While they may not remove the hurdles completely, following them will ensure you gain from your investment.
- Buy property insurance
You may need to purchase a property insurance cover for your rental real estate. This will enable you to cover the costs that come up related to damages and fixtures. You can consult with an insurance agent who can assist you in selecting the right package for your property.
- Carry out a thorough inspection of the property
You can avoid unexpected costs by hiring an expert to check out the property for any potential problems before you invest in it. Do this before the tenant moves in to rectify any problems beforehand.
- Learn more about a prospective tenant
Many landlords are keen to fill in vacancies rather than ascertain the personality of the new tenant. Learn their history from their previous residence and find out the state of their present living quarters. Chances are that is how yours will look like when he lives there.
Investing in rental properties is very advantageous if you have the right information. Keep in touch with other property owners to learn about the latest developments and customer trends. Finally, create a network of professionals such as lawyers and bankers, they may be useful someday.
Do you think a rental property can be a good investment? Let us know what you think in the comments below.
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