Most everyone can use some extra, reliable income. Thats what makes the prospect of a rental property so attractive; its a long-term investment that, if managed well, can bring in long-term returns. But like any significant investment, a rental property is nothing to rush into. Theres homework to do.
For instance, youre not just buying a house—youre establishing a business. Check with the local government about minimum requirements for rental properties. Knowing those requirements will be important when you actually shop for a property. Youll want to find one that wont need a lot of investment to bring it up to code.
Here are some other things to consider before buying that first rental property.
Can You Afford to Get Into This in the First Place?
Buying a rental property isnt like buying a primary residence. For instance, as a business, it doesnt come with the tax benefits and down-payment flexibility of a primary residence. So, youll need to look carefully into your financing and how your rental property mortgage and taxes will fit into your overall financial picture. How much will the general upkeep of the property cost? Its a business expense, after all, one that will affect your bottom line. After paying the mortgage, the property taxes and allowing for various expenses, how much profit can you reasonably expect your rental property to generate? Are you in a position to weather a few months without tenants if you have trouble renting?
Are You Cut Out to Be a Landlord?
Being a rental property owner means things will need fixing. Are you handy with that sort of thing? Can you afford to hire someone do it for you? It also means dealing with tenants. Some pay their rent on time. Some dont. Some complain a lot. Some dont. Some treat the places they rent with respect. Some dont. Some think about renters insurance. Some dont. This isnt just a financial investment. Its an investment of time, effort … and maybe a little of your sanity.
Youre up for It? Okay. Where Do You Want to Be?
If youre going to get into rental properties, starting local is a good idea. You know the neighborhoods where you live, their location pros and cons, and youve probably got a good idea of what is an isnt a bargain. And, as a rental property owner, being local means being able to stop by and make sure your place is still standing (just in case you dont do so well picking out that first tenant). Consulting a real estate agent is an excellent idea, no matter how well you know the area. He or she may be able to tell you if there is a better part of the year to do your property shopping.
Make Sure Youre Wanted Where You Want to Be
Once youve identified some neighborhoods, check around and ask if there are any other rental properties in the area, or if a neighborhood or subdivision, has any rules against rentals. If the neighborhoods have homes associations, check there. If they dont, thats a great question for your real estate agent. You dont want to set up a rental in a neighborhood that doesnt like the idea of residents with no long-term investment in the community. You could be doing your investment and your renters a disservice by setting up where youre not welcome.
Keep It Simple When Buying
It might be tempting to buy a distinctive house you think people will want to live in but think twice (and maybe a third time, if twice doesnt do it). Properties such as ornate Victorians and elegant Craftsman houses are wonderful, but maintaining them in resale condition can be expensive. Since you dont know what kind of wear and tear your renters will put on your house, youre much better off buying a simple house that can be repaired easily. A great tip is making sure theres easy access to your plumbing. Youll be thankful should anything go wrong.
Dont Assume You Know Everything
Owning is very different from owning a primary residence. There are plenty of people out there who have done it well and will gladly share tips with you. Ask your real estate agent if he or she will put you in touch with some rental property owners who can give you an idea what life is as a rental property owner. And spend time online. Maybe youd like to start with a realtor perspective. Or something from a popular magazine. Go to the IRS for information on rental property taxes.
Who knows? Once you get some successes under your belt, you may even move on to vacation rentals!
Take your time, do your research, ask yourself if youre truly up for the challenges. If the answer is yes, make a solid decision to foray into the world of rental properties.