One of the ways to invest in the real estate market is by buying property to rent. However, finding the way around it is not as easy as it sounds. I need to take all steps and considerations clear before finally putting down the money.
Renting property seems like an easy way to get extra income, but a lot goes into it. First, I have to ensure I am cut out for the task. Can I unblock a pipe or toilet? What about repainting or sealing cracks? You are probably thinking, “I can easily hire a property manager to take care of that.”
Although hiring is an option, it is not always a good idea to invest in something I do not have the experience taking care of. Hiring someone for maintenance eats into my profit, so I should ensure I can save a bit from doing some of the work myself.
Another wrong move in buying a property to rent is when I have outstanding loans. Investment gurus do this all the time, but first-time investors should avoid it unless the investments’ returns are higher than the outstanding loans.
After being clear that this is an investment I can handle, I should ensure I have the down payment. Mortgage down payments only need 3% of the costs, while property for investments needs at least 20%. Investment properties require a higher down payment since mortgage insurance does not apply. I could use personal savings for this or look for banking financing.
Next, I will want to ensure I am scouting houses in the right location. Going for estates where people are moving out instead of in is like betting on dry land. On the contrary, I should focus on cities where people are starting to come in, which means I will be working with high demand.
Other location considerations could include amenities specifications such as schools, restaurants, malls, parks, and theatres. Property taxes vary across the country, so I will also want to ensure I keep it as low as possible.
Operating expenses are relatively high, and I wouldn’t want them overshadowing expected profits. New properties often require 35 to 80 percent in gross operating income. An ideal bet should be at least 50%. For example, if I charge $1600 on rent, then the operating costs will be about $800. Keeping this calculation in mind will give us a clear expectation when surveying different properties.
I am one of those people who tend to jump into opportunities with all I’ve got, and this is not always a good idea, especially in real estate. The best property to begin with is a low-cost home. This keeps the operating costs low. According to the experts, one should look for a home worth $150,000 in a developing estate and be wary of the nicest house on the block. It could be the nicest to the eye but dangerous to the pocket.
Landlords deal with human lives, which is why the government has policies to ensure no rights are violated. Landlord-tenant laws are quite precise with all legal requirements, so I need to get familiar with them to make renting out property work. They cover the relationship in terms of lease requirements, fair housing, eviction policies, and security deposits. Federal hassles can ruin one’s reputation as a landlord; therefore, it is better to be on the right side of the law.
Landlord insurance is another vital requirement as it will cover my new investment. It offers covers such as liability protection and lost rental income.
Every investment has its risks. Therefore, I shouldn’t expect buying property to rent to be any other way. However, I can weigh my risks against my gains to ensure I make the right decision. Having an experienced partner on board can be a great way to start with the first property.