Having rental properties can be a great source of income as long as it’s done the right way. There are certain things to be aware of and processes to follow that will help you get started and become successful. One of the most important first steps is to choose a mentor. Find someone you trust who has been successful at buying rental properties, being a landlord, and who knows the ropes. With this person’s guidance, you’re sure to have the success you are looking for.
Choosing a house to rent out
When searching for a property to invest in, look for one that needs only minor repairs, especially if you’re just starting out on this landlord journey. If you can, buy a property in your vicinity, but don’t preoccupy yourself about it. It’s more important to buy a quality property than buying local. If you don’t buy local, you can always get a property manager.
When choosing a property, you need to be somewhat skeptical because every seller tries to make their home seem more appealing than it probably is. Don’t allow your emotions to rule your decision. It’s easy to become emotionally attached to the property and maybe even dream of living there yourself. But don’t fall into that quagmire. If you do you will be tempted to over improve the property making your property more expensive, and take longer to get on the market.
Keep your expectations realistic by not buying a fixer-upper, especially if you don’t have the skills to do the renovations yourself. Hiring someone to fix up your investment can take a huge bite out of your profits. Start with a low-cost home that needs very little upkeep. That will mean lower ongoing expenses, which then translates into fewer headaches for you, and a higher profit margin. The experts say when starting out first buy a single family home that is rent ready because there is less maintenance than multiple units. This will make your first time renting out a home much easier, and the learning curve won’t be quite so steep.
A few more things to remember when choosing a rental property. Once you have narrowed down the possibilities to just a couple, then would be a good time to start visiting the neighborhood. Choose several different times of the day, and different days of the week, because neighborhoods have a character which is different during leisure hours than it does during work hours. Visiting at different times and days can give you a more accurate idea of what the neighborhood is truly like. One other thing you should check is if there is an HOA (Home Owners Association). If there is, make sure you read it carefully. You want to know if the neighborhood restrictions will allow you to do what you have planned for your rental property. You don’t want any surprises.
Getting money to buy a rental home
Once you have found a property that interests you, create a spreadsheet and do a rental property analysis. Create a budget as part of your property analysis. If you don’t plan to manage the property yourself, be sure to include approximately 10 percent of gross income for a property manager. Also, keep in mind that mortgage companies require a larger down payment for rental properties than they would for a home you would personally occupy. Remember that the interest rates for investment properties are higher. Make sure you do the math to see if you will at least break even. If you will, then it is a good investment.
As you go into this venture ensure that you have enough savings or personal income to be able to pay the mortgage on your rental as well as your own home. It could take a while to find the right tenant until then you will be responsible for paying that additional mortgage payment.
Becoming a landlord
Becoming a landlord can be one of the scariest and hardest parts of buying rental properties. One way you can solve this problem is to hire a property manager. This will free up your time to work on other things, and prevent you from having to be the bad guy. This decision can make or break your success. If you choose to not have a property manager, then you really have to know yourself. Can you be the bad guy? Can you hand that little family with the cute little kids an eviction notice? If you can’t then hire someone who can.
When choosing tenants, be selective. Use a screener and references. There are many on the internet to help you. Decide on what your rules are and include them in the lease. Disclose every detail, so there’s no confusion on the renters part. Don’t be a softy, or nonchalant about the rules, stick to them. Let the tenants know that the rules matter and there are consequences for not following them.
You should visit your properties frequently to keep an eye on them. Schedule some of your visits, but you definitely should have some drop-in inspection also. Remember, you’re not there to observe their housekeeping habits, but to look for damage before it becomes a problem. Keep on top of the repairs, because you don’t want a small leak to become your biggest nightmare. If you are good at home repairs, then your profit margin will be pretty good. But if you’re not, then having to hire someone to make repairs on your rental will eat away at your proceeds, and your rental home might not produce as much income as you hope.
Owning rental properties can be a lucrative and enjoyable adventure if done right. It would be a shame if your first attempt at owning a rental property is so miserable that you’re scared away from trying again. You never know, eventually it could turn out to be something that you’re really good at. Listen to the experts, do your homework, find a mentor, and don’t be afraid to take chances.