How To Profitably Invest In Apartments For Rent
Meta: Investment in apartments for rent brings sustainable profit. However, not all investors can succeed in this area. We are here today to share our experiences.
Investing in apartments for rent has attracted lots of investors. It is regarded as a highly profitable real estate investment channel. But in order to succeed in this area and ensure a high, stable profit, investors need to seriously consider many aspects.
In this article, we will share with you some tips about how to profitably invest in apartments for rent in Ho Chi Minh city. These are the experiences we collect from experts and our own.
Investing in apartments for rent is a growing business trend for many real estate investors, either big or small. Although the renting market often fluctuates, we cannot deny the low risks, high economic efficiency, and stable cash flow from it.
Business models in the rental market
There are two different business models in the rental market. The first model is own-lease that you take your own house/apartment and rent it out. The second one is lease-sublease, meaning you rent a house/apartment. Then, you renovate and let others rent it for a higher price to benefit from the surplus.
These two business models have quite different profit margins. Own-lease can bring an average profit of 5-10% per year. Whilst the model of lease - sublease can bring profits up to 50 to 100% per year. However, the own-lease model is safer and requires less effort than the other model. Not to mention that good business knowledge and skills are vital for the lease - sublease model.
Either way, to lucratively invest in an apartment for rent, you - the investors need to clearly identify many factors. They include target tenants, types of apartments, locations, interior investment, and building plans for rent. Marketing strategy and service management need attention too.
Define target clients
Firstly, when investing in apartments for rent, you need to determine the target tenants you are aiming at. This will ensure a smooth process of finding tenants through suitable advertising channels like newspapers, rental websites, or agents.
If your potential tenants are single people or office workers, you should choose cheap apartments. Luxury apartments are often suitable for those with good income, foreigners, or newlyweds. For customers who are businesses and small companies, the most appropriate type of apartment is Shophouse.
Another critical aspect is, to be honest with your advertisement. First impressions are important. You must be honest with your product. Make sure you post the real images, the rental cost (any specific fees applied), and describe the current conditions of your apartment.
Select the apartment location
The apartment location is also an important factor that you need to carefully consider when investing in apartments for rent. Ideally, a good apartment must be located near residential areas with developed transportation systems and infrastructure. This increases the chances of attracting more customers.
Repair the interior, exterior and invest in furniture
When investing in rental apartments, investors also need to care for the interior and exterior carefully to increase the value of the house. An apartment with a neat, eye-catching appearance tends to impress customers more easily.
Making sure the apartment is always in good condition will help you attract suitable tenants. Even if the price is slightly higher compared to the current market, there are still good chances that those customers will choose to stay.
The investors must repair the cracked walls, repaint the main door, add decoration (plants are always favorable) in front of the door, or on the balcony. Besides, investors should remove old and unnecessary items to free up space, repair or buy new any damaged furniture in the apartment. A fully-equipped apartment is always preferred.
Rent out with a reasonable price
For Vinhomes Central Park apartment for rent, investors can consider a suitable renting price based on the area, location and other advantages of the apartment (like business advantage or possibility to open an office)
At this point, the investors need to investigate the average rental fee in the market at present. A study on the rent in nearby areas is necessary too. Furthermore, investors must estimate the costs incurred in the renting period to decide the final rental price. These include repairs & maintenance costs, management fees, sundry expenses, and average vacancy rate (10% -15% per year).
Typically, the rental fee will be adjusted annually, depending on the commodity price index and inflation index. If you are not good at calculation, you can seek advice from real estate brokers.
Prepare the lease agreement
When renting out an apartment, investors need to make it legal by preparing a contract to specify the responsibilities of both parties. It is a primary term, especially when you lease out high-value apartments or the ones with valuable furniture. The terms of the lease should demonstrate in detail how to handle violations and other situations.
Usually, a one-month deposit will suffice. This is to make sure the tenant can afford to pay monthly. Besides, it can also be used to deduct into fines in case the tenant breaches the contract.
Special note for investors using financial leverage
If you are an own–lease investor and you purchase the property using financial leverage from the borrower, it is necessary to consider the rate between the profit from the rent and the interest rate. Needless to say, the profit must be after deducting tax, and the expenses we mentioned above.
This will help investors to avoid the situation when the property is vacant but cannot be sold. In this way, financial pressure will become a significant burden.
Invest in apartments for rent is a channel chosen by many investors with much belief in gaining sustainable profit. However, not all investors can choose apartments that are attractive to tenants and receive rental income as expected. In such cases you might want to consider a crowdfunding option such as Roofstock
We have shared with you all the valuable tips from our experience. Hopefully, you can draw out a suitable investment plan to optimize the profits from invest in apartments for rent.