In today’s unstable stock market, more and more people are earning monthly incomes by becoming landlords. Unfortunately, sometimes people buy rental properties without first understanding the basics of what’s involved in a property, as well as what to expect when becoming a landlord. As a result, their ventures become nightmares.
Although investing in rental property can be a steady or even lucrative way to make money, it’s critical that potential landlords do their homework before making a purchase in rentals. Here are some of the most important and basic things that you should know before beginning to invest in rental property.
Determine Your Reasons for Investing
The first step is to think about why you want to invest in a rental property as this can help in keeping you focused when you encounter challenges. For example,
- A source for monthly cash is often why people invest.
- Another common motive many people buy rental properties is for paying for credit card debts.
- Others decide to invest because it can be a good way to save for their children’s college education.
Consider How You Plan to Finance Your Investment
Don’t make the mistake of searching for possible rental properties before determining how you will secure the financing to pay for it. You don’t want to get attached to a certain property only to discover that it’s not affordable.
Talk with a mortgage broker or a bank representative. A bank agent can help you, but there’s an advantage of using a mortgage broker. These professionals are highly knowledgeable and can answer your questions. Choose a mortgage broker who’s highly experienced or specialized in real estate mortgages for investors; not all brokers are the same.
Research the Location of a Potential Investment Property
Location is huge when it comes in investing in rental properties. The better the location, the less likelihood you’ll have a vacancy, as well as receive higher rental rates. What’s more, a quality location attracts a higher class of tenants. There are several factors to consider when choosing a good location for a rental property, such as:
- If the crime rate is low or high
- Whether or not the location is in a desirable school district
- Stability of property values in a location—For example, have property valued stayed consistent or have they increased or decreased over a year’s time or the last five years.
- Property amenities such as transit, shopping and biking trails
Know About Any Unanticipated Expenses
In most cases, rental properties need more maintenance than traditional housing. That’s why it’s important to anticipate unexpected costs, regarding upkeep and repair. Therefore, you should know information, such as:
- The age of a HVAC unit
- The age of a roof—Although a roof may look like it’s in good shape, don’t rely on visual appearance.
- The condition of the siding and house exterior
- Possible water damage, such as in kitchens, bathrooms and laundry areas
Additional Considerations and Warnings
- Rather than having a goal of making a lot of money, determine goals that are more specific, in addition to the amount of money you want to make.
- Because often tenants move out of rental properties, you’ll need to estimate how long it could take you to find a new renter if this happens. In other words, set up a budget for vacancies that could occur.
- Be sure that the cash flow from a rental property is enough for paying off the loan for your mortgage in 10 to 15 years.
- Consider if the property taxes are likely to rapidly increase.
- Before making an investment, you’ll need to decide on the rules for a lease and then stick to them. Consider the consequences for damages, late rental payments or other problems.
Questions? For more information on investing in rental properties, don’t hesitate to call The Landlord Property Management Academy. We offer the best education and resources of every level of property management. Please contact us and let us show you what we have to offer.
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