It’s not rocket science, but it is a huge advantage to be informed and know your best first steps before buying your first rental.
Are you mulling over the idea of purchasing an investment property? Real estate investment has many advantages, for sure, but there are viable things to consider before you take your first leap. Being in-the-know before spending your hard-earned cash is smart. Here are some recommended tips to consider.
- Purchasing an investment property for the purpose of earning rental income can be risky.
- Before you buy secure at least a 20% of the down payment.
- Be clear on what it means to be a landlord. It requires a range of skills, from basic tenant law to fixing a broken water heater.
- Experts recommend you have financial cushion, as it make take longer to rent out the property and when you do, it may not fully cover the mortgage payment.
Say No to Fixer-Uppers
Give yourself time to adjust to the processes and think about a fixer-upper later. Flipping a property is not as easy as it may seem. It’s smarter to look for a home that is priced below the market value and needs only minor repairs.
Being a Landlord is Not for Everyone
If you’re handy with tools, you have a jump on it. Can you repair a drywall or unclogging a toilet? Sure, you could call somebody to do it for yourself, or you could hire a property manager. Property owners who have one or two homes often do their own repairs to save money.
Personal Debt is Best Paid Down
Until you’re a more ‘seasoned’ investor, avoid leaving personal debt on the books before you invest in your first rental property. If you have student loans, unpaid medical bills, or children about to attend college, it might be prudent to put off investing.
A Secure Down-payment is Ideal
Investment properties generally require a larger down-payment than do owner-occupied properties; they have tougher approval requirements. The 3% you may have put down on the home where you currently live isn’t going to work for an investment property. You will need at least a 20% down-payment, since mortgage insurance isn’t available on rental properties. You may be able to obtain the down-payment through bank financing, such as a personal loan.
Location is Crucial
The popular real estate phrase, ‘location, location, location’, should not be taken lightly. Whether you’re buying property for your residence or to rent, select a locale that is new or being revitalized. Buying into declining neighborhood is definitely not in your best interest.
Start Out with a Moderately Priced Home
Obviously, the more expensive the property, the greater your ongoing expenses will be. It’s best to start with a $150,000 home in an established neighborhood, avoiding either the best or the worst house on the block. Somewhere in the middle is a good choice.
Understand the Legal Side
Landlord-tenant laws vary from state to state, but regardless, it’s important to understand your tenants’ rights and your obligations regarding security deposits, lease requirements, eviction rules, fair housing, and such to avoid any legal issues.
As you advance on your rental property owner journey, you may decide to partner with a property management company such as Cousin James Management. One of the most loved things about Cousin James is that we treat our clients like family and take care of your properties like we would our own. Learn more about how we can help you efficiently manage your real estate investment property.