5 Things to consider before buying investment rental property

Investment expert shares 5 things your should consider before buying a rental property in Nigeria

Rental property can be an excellent way to earn additional income; however, investing in rental property is more than just purchasing a property and watching the money roll in.

Many people believe that the biggest hurdle they may face is acquiring the property; but this may be more complex than they think.

Before you take the bold step of purchasing a rental property, there are other issues which you may face along the way and which should be considered.

Today, we are going to look at 5 of those issues which you should consider before taking the bold step in acquiring a property for rental purposes in any part of Nigeria:

1. Capital equals rent

First, always make sure you take the time to know exactly what you can afford. Start with the budget level you are comfortable with.

Many people make the mistake of overlooking this step, assuming that the rent will immediately make up for the investment. But it is not always so, as it sometimes takes a long time to find the right tenants. And if you are in a hurry, you may end up with troublesome tenants who will not pay you rent or cause you expensive legal troubles.

However, if you are not sure exactly what kind of rental property you can get at your budget you could always consult professionals or do some research. You should always research rental properties in your local area to understand the going rates for similar properties.

Check the listing sites for options. For instance, www.nigeriapropertycentre.com has one of the most updated information for this.

It is also a good idea to check with other investor landlords for their rental rate information – people who are renting in that area is also a good resource.

• How much work will be done on the property?

Secondly, you need to take into consideration management and repair expenses which may come up along the way. Ideally, you should have a reserve fund stashed to protect you in the event you experience emergency expenses or your property is vacant for a period of time.

Professionals advise that before you commit to purchasing a property, make sure that you will be able to rent the property for at least an amount that will pay for itself no matter what and help you to recoup your capital in 5 – 10 years minimum.

Other costs you need to account for include insurance premiums, overtime maintenance costs, property taxes and income taxes as might apply.

• What type of property can I afford without borrowing money?

Another thing to consider before going into rental property is to ask yourself what type of property can I afford without going into debt.

You need to consider the type of property that will best suit your budget. Buying an investment property is not about buying where you think you can make money because you can make money anywhere through rental properties.

For example, there are people killing it with low-income housing and getting paid rent monthly – they embraced the reality and created a system that works for that and they are scaling too.

There are also people who are comfortable within the middle-income category and dealing with the issues and results that are compliant as they come.

Rental property management is not always roses but those who stay in, do so, for the bigger picture and they create their management systems alongside.

You can find rental properties in many different sizes as well as types. Each of these different types can pull in different rental rates as well as attract different types of renters. So, giving thought to the property that best suits you is really an important step which should not be overlooked.

• Location of the property.

Another issue is to consider the location of the property. If you purchase a property that is near a college or university you are likely going to find that most, if not all of your tenants are college students.

This is good because it means you will have endless supply of tenants and you will never have vacancy in your property as long as you are willing to rent.

However, while you may never have a vacancy, you may also find that you have a problem collecting rent and even possible damage to the property itself since most of your tenants are teenagers and young adults.

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• Know your job as a landlord.

As a landlord, you should make sure you understand your responsibilities and expectations and plan to abide by them all.

Keep in mind that some of your obligations are regulated by the state in which the property is located in. If you fail to follow state regulations you could find yourself in for quite a bit of financial as well as legal trouble.

Therefore, it is always best to educate yourself ahead of time.

• Insurance

As a property owner in Nigeria, you might be tempted to overlook insurance, but do not make this mistake. Make sure you consider how much insurance you will need to pay on the property before buying and factor it in into your budget. And this includes, in the event of damage or destruction, fire outbreak, and also to cover all liabilities as well.

While liability claims are not common in Nigeria, if you are negligent with property maintenance your rent will suffer and you will continue to have problems with your tenants.

Meanwhile, your most important insurance to have would be for fire outbreaks and major damages.

As a landlord, your priority should be ensuring the property is in order and not off-market for too long, thus, your insurance covers. And should you need to recoup some of the damages from a 3rd party, you can do this whilst your refurbishment is ongoing.

Rental investment property truly can be an excellent investment and income builder provided that you are prepared and understand what you should expect from the onset.

If in doubt, do not be afraid to seek help where you need it, especially from professionals such as property managers and lawyers respectively.

And if you need help assessing the locations where you can find viable investment properties, feel free to comment below or send in an email.