Purchasing a second property to rent out is a large financial decision that can contain may pros and cons. It is important to analyze your own situation and the responsibilities that come with this purchase, before deciding on investing. While it may be an ideal investment choice for some people it may come with too many implications that others do not want to deal with. It can be risky as this is a large investment that will require time and knowledge as well as the capital.
When looking to purchase a property there are many different factors that should be considered to find a place and prepare a fair offer. This could be the surrounding area, the demand for housing, the comparative costs of other property, the state of the economy along with many other reasons. It is a different type of deal to purchasing your own home or living space so it should be approached as more of a business transaction. Once you decide to purchase, the deal will need to be financed depending on how large of a down payment you plan on making. Ensuring you have little debt of your own before purchasing is another aspect to keep in mind.
It may be smart to look for a property in need of less renovations to avoid extra costs after the initial investment is made especially since once you become the owner of a rental property you also assume the responsibility of the landlord. This can bring many difficulties within itself such as dealing with repairs or collecting late rent/tenant issues. While most owners end up turning to a property manager to take care of this for them, that option can be costly especially if you already have small profit margins. This could be around 8%-12% of monthly rental as well as a different number of fees and flat rates. They will help keep the building up to proper code and following all regulations which is a good addition. It is important to budget out expenses and income before hand to help make the choice on whether this is profitable for you or not. Accounting for unexpected expenses on top of basic maintenance and other fees is vital to a good budget. A return on investment of over 10% would be a good option to purchase.
If this does end up being a feasible option for you then there are plenty of upsides to owning a rental property. There are many tax benefits to this investment as you are able to write off a various number of expenses. The ability to earn passive income is also a great way to diversify your investments and keep constant cash flow coming in on top of another job or other investments. Real estate is also considered less volatile than the stock market, so this provides some stability within your portfolio. This is just a small collection of factors to consider when looking to make this decision. While the choice to invest does have a number of risks associated with it, there can be opportunity for many benefits if the process is handled professionally.