Owning a rental property can be a lucrative business in Malta as one can expect around 4% yield p.a. Many wise investors have become independently wealthy through acquiring more rental properties over the years, but it is very rare for one of them to ever say they have never ever made a single mistake or never had any problems. Your chances of becoming a wealthy landlord will completely depend on the decisions you make before buying any of your properties, how you manage your portfolio and to what extent you have minimized any of the risks associated with buying and owning a rental property. Many investors look to purchase a property which has a reasonable return on investment.
In this guide we will look at the factors that you need to fathom in when looking at buying a rental property, the goals you need to set in order to be successful and the mistakes you need to avoid.
Whether you are going to be the owner of a single rental investment property or end up having an eclectic mix of apartments, villas, townhouses, terraced houses or even houses of character… certain factors will always be universally important to consider before you buy. These are:
This is the mantra of the wise estate agent and investor: “Location, location, location”. Before deciding on where to buy, you have to see what market you are going to cater for and of course what your budget is. The surrounding area and neighbourhood will have a definite influence on the type of tenant you will attract and also affect your occupancy rate.
For example, if you buy a smaller property that caters for tourists or short stays your occupancy rate will be down at certain times such as in the winter season. If it is one near a college, school or university that caters for students, the same will apply when it is school holidays.
If you are going to buy a bigger property away from the tourist hotspots you may get more value for your money, but make sure you are close to day-care, shopping centres, schools and hospitals, in fact anything that can add value when it comes to families. Also see if the property comes with guaranteed parking or even off-street parking as this will make it more appealing. Another important aspect is for the location of the property to have access to public transport routes.
No-one wants to rent a property in an area that puts them or their loved ones at risk. The same goes for vandalism or anti-social behaviour from neighbours.
If you have chosen wisely, your property will appreciate over the time that you are renting it out as well. As said, properties in popular areas will cost more but always be on the lookout for up and coming locations and speak to your agent about this. Finding a hidden gem in an up and coming area early on can make you a handsome profit when you sell one day, besides the promise of a good monthly income from renting it out till then!
Never buy on impulse and visit the property you are interested in at different times of the day as only then will you get a clear picture of the location. This can include a better understanding of the traffic and congestion, the neighbours, noise and more.
Another well-known saying in property is “Buy the worst house in the best area”. What is meant by this that you can always upgrade the property but never the area. Many investors have overlooked really good buys simply because the superficial condition of the property scared them off. Clever investors know the difference between a cosmetic and serious upgrade and stay away from the latter for good reason. There’s nothing better than discovering a great property in a good area that no-one wanted simply because it looked awful. Always look for the potential! This is where you can make some serious money: not only will you stand a good chance of getting the property at a good price, you will get tenants in no time after some cosmetic upgrades that will take no time and little money.
Get an architect to come and inspect the property before buying to make sure there are no serious structural issues.
Older properties may require more maintenance whereas new properties do not. Always make sure you have some cash reserves in case of emergencies. Never ignore the importance of maintaining a property, no matter its age and it is also required by law that a property that is rented out is maintained in a habitable state, fit for human occupation at all times.
Depending on what you buy, there may also be management costs involved annually.
Look after your property and maintain it year-round. This will save you money in the long run and prevent things from deteriorating beyond a point of no return.
No-one has a crystal ball to predict the future accurately, but when you are looking at purchasing a rental property, you have to do some reading up on what possibly lies ahead. Speak to you estate agent as they will be in the know of what new developments are coming to the area, what upgrades are planned and much more.
Also do some research about the economy in general such as past performance, jobs and wages for the market segment you plan to rent your property to. Also find out what similar properties to the one you intend buying in the area is rented out for.
Even try and see what will possibly happen in the next five years in the area so you are prepared for anything.
Your rental property should have the possibility to contribute towards a healthy, growing cash flow from your first month. This fund should grow over the years so that you do not end up in a situation where you are out of pocket when something big goes wrong. Never be tempted to spend that extra cash, as a day will come when you may need it.
If it is already too late and you have bought a property which is sitting at break-even for years or even worse, turned into one where you are ploughing more money into it than you are making, sell your property as soon as possible and move on. The goal is to never buy a property which does NOT to make money!
Seasoned landlords who have made a success out of acquiring and managing a portfolio of properties all have one thing in common: they work with a good estate agent when buying and have the properties managed afterwards on their behalf. Below are just some of the benefits of establishing a good relationship with an estate agent:
Owning any property has its risks and this can be especially intimidating for first-time buyers of a rental property. If you have an excellent estate agent on your team when buying, your worries will be more than halved. We look at some of the pros and cons of owning a rental property in a nutshell:
Owning lucrative rental properties can set you on the path to financial independence, but you always have to keep it well managed and maintained. The most successful landlords always work in tandem with a good estate agent who knows the market and the area well and many of them also resort to having their properties professionally managed. This sets the owner free to pursue other interests instead of being burgeoned by the responsibilities of dealing with tenants, accounts, maintenance and repairs. Frank Salt Real Estate has a special division that will manage your property successfully for a fee and deal with all matters related to your rental property. If you are interested in finding out more, why not give us a call?