Most everyone can use some extra, reliable income. Thatâ€™s what makes the prospect of a rental property so attractive; itâ€™s 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. Thereâ€™s homework to do.
For instance, youâ€™re not just buying a houseâ€”youâ€™re 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. Youâ€™ll want to find one that wonâ€™t 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 isnâ€™t like buying a primary residence. For instance, as a business, it doesnâ€™t come with the tax benefits and down-payment flexibility of a primary residence. So, youâ€™ll 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? Itâ€™s 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 donâ€™t. Some complain a lot. Some donâ€™t. Some treat the places they rent with respect. Some donâ€™t. Some think about renterâ€™s insurance. Some donâ€™t. This isnâ€™t just a financial investment. Itâ€™s an investment of time, effort â€¦ and maybe a little of your sanity.
Youâ€™re up for It? Okay. Where Do You Want to Be?
If youâ€™re 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 youâ€™ve probably got a good idea of what is an isnâ€™t 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 donâ€™t 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 Youâ€™re Wanted Where You Want to Be
Once youâ€™ve 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 donâ€™t, thatâ€™s a great question for your real estate agent. You donâ€™t want to set up a rental in a neighborhood that doesnâ€™t 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 youâ€™re 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 doesnâ€™t do it). Properties such as ornate Victorians and elegant Craftsman houses are wonderful, but maintaining them in resale condition can be expensive. Since you donâ€™t know what kind of wear and tear your renters will put on your house, youâ€™re much better off buying a simple house that can be repaired easily. A great tip is making sure thereâ€™s easy access to your plumbing. Youâ€™ll be thankful should anything go wrong.
Donâ€™t 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 youâ€™d like to start with a realtor perspective. Or something from a popular magazine. Go to the IRS for information on rental property taxes. Â
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 youâ€™re truly up for the challenges. If the answer is yes, make a solid decision to foray into the world of rental properties.
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