This is a guest post by Robert.
If you are looking to diversify your investments, or want an investment that is based on cash flow, then getting a rental property can be a great investment. However, it is important to remember that a rental property is part investment, part business, since it does require some work on your part.
The Mortgage
The first piece of that is figuring out what you can afford. This means looking at cash flow minus expenses, and the biggest expense is usually the mortgage. Since you are looking at this property as an investment, it is essential that you calculate your mortgage payment using a buy to let mortgage calculator. Buy to let mortgages are ones specifically designed for investment properties, as they factor in different information compared to a standard mortgage payments calculator. For example, it will take into consideration the cash flow from the property, instead of just relying solely on your income as the borrower.
Other Key Expenses
Beyond the mortgage, you should also take into consideration expenses such as insurance, property taxes, maintenance, utilities, and more.
With insurance, you can usually get a fire policy that is specifically designed for rental properties – it excludes personal property, and as such, may be cheaper than a traditional home owners insurance policy.
You also need to remember to save money for maintenance and repairs. It is inevitable that something will break or need your attention, and repairs cost money. Make sure you save some money each month to plan for this.
The Cash Flow
Rental properties are about cash flow, so make sure that your investment will deliver. Take your estimated rent, and subtract your expenses, and that is your cash flow.
It is important to note that you also get one important tax benefit – depreciation. This is counted as an expense on your tax returns, but you don’t technically lose that money. As such, if you had income that matched the amount you depreciated your property by, you would not pay any income tax on it since it would be a wash. That is one of the biggest benefits of rental property ownership.