Despite the increasingly high interest rates in the recent years and mortgage premiums, Rental Properties still make for a viable and great investment plan even for the first-time buyers and those simply looking to expand their assets and portfolios and we’ll tell you why in today’s blog.
One crucial thing to understand is the value and concept of ‘fixed-rate’ mortgage in order to leverage on this investment. While most countries have flexible mortgage rates, for the unknowing investor, this could still serve as a potential trap for reasons such as increasing interest rates that naturally happens during ownership, that oftentimes, could discourage investors.
However, it is also important to know that despite such trends in the real estate market, we could also ask ourselves instead, what we can do to mitigate these increasing upkeep costs.
“How can we continue to profit during these increasing interest rates?”
Through questions like these, we begin to understand the ways in which we can further maximize income in real estate investments while sustaining these mortgage costs and finally, the fact that despite inflation, mortgage payments are NOT affected if you are in fixed-rate mortgage arrangement. Factors such as appreciation does not affect this as well.
The proper mindset
Think of your properties as long-term investments. Unlike the stock exchange and other much more volatile forms of business, properties have better appreciation in value over time especially as the surrounding area get developed. Properties are to be seen, and used, as investments that help you secure your long-term goals, and oftentimes, it’s the immediate cashflow numbers that we only see and this causes us to lose vision of for long-haul.
Ways Rental Properties can generate income
Rental properties generate income through the following ways:
- Appreciation
- Hedging
- Equity
- Cashflow
Once you understand how these four main concepts work, you can then apply them to your long-term plans and to do so, you must also understand how to utilize concepts such as ‘demand’ and ‘location’ as well.
Even if interest rates are high, if the property is truly desirable and provide great accessibility to various other utilities and key locations such as parking, amenable neighborhoods, amusement locations, hospitals, schools and industrial locations, demand to acquire or live in these properties increases and this is a compounding effect – It will only continue to attract other people as they see more people moving in.
This is achieved by improving your properties and preparing them for better rental occupancy and this also gives you better chances in increasing your rental rates which therefor, increase cashflow. Simple right?
However, this also opens up another question – “How will I manage the new expenses for rehabilitation and renovation?”
One of the best moments this can be done is during interest rate drops so that you can quickly refinance and allocate the costs saved during these times for the renovation costs. While rates are not guaranteed to drop, this is one of those windows of opportunities to look out for.
Consider these tips as well to better manage the renovation process during times of inflation:
Timing – Timing plays an important role in minimizing renovation costs. Schedule improvements during off-seasons or less busy times of the year, when contractors may give discounts or have slower business. However, keep in mind the potential impact on rental income while renovating.
Staggered improvements – Consider a staged approach rather than performing big renovations all at once. Prioritize the most crucial improvements first and stagger the remainder over time. This strategy might help you spread out your spending and create rental money while you continue to develop the property.
Relying on your DIY skills – Examine your abilities and assess whether you can perform certain renovation projects on your own. Minor repairs, painting, and gardening are examples of areas where you can save money by completing the work yourself. However, for complex or specialized projects, it is always advisable to use expert contractors to ensure quality and avoid costly mistakes.
Prioritize the essentials – Concentrate on important renovations that will have the greatest influence on the property’s appeal and value. First, address any structural issues, safety concerns, or functional flaws. This could entail repairing the roof, upgrading electrical systems, mending plumbing issues, or enhancing insulation. Prioritizing necessary improvements will guarantee that the property remains habitable and desirable to tenants.
Proper budget planning – It’s easy to get lost in the thought of numerous possible ways in which you can renovate or improve your properties, leading to unnecessary expenses that can easily overwhelm your funding and it is critical to prepare a precise budget before beginning any renovation job.
Consider all of the repairs, upgrades, and changes that are required to make the property more appealing to potential tenants. Investigate the expenses of supplies, labor, and any permissions or licenses that may be necessary. To allow for unexpected expenses, include a contingency cushion in your budget.
Cost-effective appeal – Consider low-cost cosmetic upgrades to increase the property’s appeal. Repainting walls, repairing worn-out flooring, improving fixtures and hardware, and rejuvenating the landscaping can all help to make the house more appealing without breaking the budget. These enhancements can considerably increase the perceived value of the rental property.
Energy efficiency upgrades – Energy-efficient modifications can benefit both tenants and property owners. Consider investing in energy-saving appliances, LED lighting, programmable thermostats, and appropriate insulation. These upgrades can attract environmentally concerned tenants while also cutting long-term operating costs by lowering utility bills.
Other things to remember
Striking a balance between cost-effective upgrades and maximizing the property’s desirability and rental income potential. Consider market trends, tenant preferences, and the potential return on investment for each modification you intend to make.
Not all rental properties will be profitable as well, and several circumstances might put a strain on the various profit areas. It’s especially crucial to remember that conjecture doesn’t always work out, and you should avoid it more frequently than not.
Most importantly, consider taking loans as well if the pressure of interest hikes are starting to put your finances of balance while you mitigate it with the cashflow made from rentals.
