Everybody must start somewhere and this also applies to property investors. When starting out, a property investor may wish to buy a house with the precise intention of renting it to tenants. This can be a relatively safe way of investing as, under normal circumstances, property values will generally increase over time.
This type of investment may not need too much initial cash as you could perhaps get a mortgage. If you do get a mortgage, you will expect your monthly income from rent to pay that mortgage and of course provide you with a profit afterwards. You should therefore invest carefully and many of the more experienced property investors follow the 1% rule.
This rule dictates that in order to make a profit from the investment in a property, the expected rent for the property should not be less than 1% of the property’s value. It is believed that if an investor can collect 1% of the house’s value each month, it will pay the mortgage and maintenance and also allow for any periods the property may lay empty for a while.
Included in the rent will also have to be the estate agent’s fee if the investor wants them to manage the property. When an estate agent agrees to be the property manager for one of these investors, they will usually be expected to collect rents, oversee maintenance and generally look after the property for the investor. If you can afford it, most investors prefer to buy properties with multiple family units so as to be able to collect more rents, not always for extra profit but to ensure that they make a profit at all.
For instance, if you buy a property for $100,000 you would need to be able to collect $1000 in rent each month in order to make it viable but if that rent was even divided in two because the property was a duplex, you could chare $500 on each unit which may make it easier to find tenants.
Of course, once the mortgage has been fully paid, you will have the option to sell the property and have all that you get for it a profit or, even if you keep renting it out, most of that rent will then become profit as there is no more mortgage to pay. Once you have that extra income, you can either buy another house for cash and keep all rent as profit or, once again take out a mortgage and o through the same procedure again. Obviously by the time you have invested in several properties in this manner, you can be assured a tidy little extra income each month.
Some investors prefer to keep increasing their investments until they get to own a block of flats or something similar. That of course could bring them in a very substantial income every month but would also of course, require a larger fee to be paid to the agent to manage it.