Buying rental property is a great way to diversify your investment portfolio and put some extra cash in your pocket. It’s considered the best investment you can make by millionaires from around the world. That’s due in part to the fact that on average, rent increases by 3% to 5% every year.
The popularity of owning rental real estate property can also be attributed to the ability to grow the venture using the profits you make as you go. As you pay off your first house, you can use the profit to buy another, and so on. That sets you up with an investment that will grow naturally over time, with a limited amount of effort from you.
Some aspects of what you need to know before buying your first rental property are easy to figure out. The considerations that first-time home-buyers face is after all, very similar. For now, let’s talk about the most common things you need to know.
Are You Cut Out To Be A Landlord?
On the surface, being a landlord can sound easy. Find some tenants, collect the rent, and go on with your day. The reality, however, is a bit more involved.
When you’re the landlord, you’re responsible for upkeep. That leaves you with two options when something breaks. Learn how to do general repairs yourself, or find a good property manager or handyman who can do it for you.
The first option will cost you time, plus the cost of basic materials. The second will require you to invest time in finding the right person and invest money in paying them. Either way, some of your profits will be lost to repairs.
Being responsible for your property means being on the hook when something goes wrong, no matter what time of the day or night it is. That’s a factor you should consider carefully before making your decision.
How Do You Choose The Right Property?
Choosing the right property is incredibly important, especially when it’s your first one.
You need to look into the neighborhood, the schools, the average rent, the crime statistics, and what attractions are nearby to get a good feel for how well a rental home in the area will do.
The neighborhood needs to be safe and appealing to tenants. The schools need to be well-rated, otherwise, renters with children may not even consider the property. The crime rate needs to be low, while the attraction count needs to be high.
In addition to all of that, some places are popular with tenants but don’t fetch enough rent to make a profit after property taxes and other expenses. It can be a lot to take in and consider, but it’s better to do your research before you buy than discover you have factors working against you when you’re already invested.
Taking the time to find a property that works for you will pay off in the long run, so don’t get discouraged.
What Are The Pros And Cons Of A Fixer-Upper?
It’s tempting to buy a fixer-upper because they often list at a lower price than a move-in ready house. While this can be a way to save money, you need to know what the cost of fixing the house up will be. Keep in mind that they’re selling it cheaply for a reason.
If there’s something majorly wrong with the house, you could end up spending lots of money and time fixing it. That means you’ll have more money invested and have to wait longer for a profit. If a profit doesn’t come or isn’t enough, you could lose money from your own pocket.
On the flip side, there are times when a house sells at a low price simply because no one wants to deal with it, and it can be worth it to take advantage of that. If there are only cosmetic issues with the house, you may be able to fix it quickly and rent it out at a higher price.
Investigate carefully when considering a fixer-upper to make sure you don’t get stuck with a lemon.
Do You Need Landlord’s Insurance?
Landlord’s insurance works alongside homeowner’s insurance to ensure you’re legally protected from surprises. That includes property damage, lost rental income, and liability insurance.
Liability insurance protects you if a tenant or their guest is injured due to property maintenance issues. This is important even if you think your property is safe because you never know when something could suddenly break. It only takes one broken stair or loose nail to cause big problems.
How Do You Get The Startup Money?
Now that you’re ready to start your rental property empire, you need the funds to buy your first house. That means you need to learn more about rental loans. A rental loan allows you to buy your rental property while protecting your assets.
When you get approved for your loan, you buy your property and start renting it out. Once you have rent money coming in, you begin paying the loan off. How long it takes will depend on how much rent you charge, and how much of that you put toward the loan.
These aren’t all of the things you need to know before buying your first rental property, but they’re a good place to start. Make sure this type of investment is something you’re willing to commit to before you begin.
