Even though renting out a property comes with its share of responsibilities, collecting rent every month and investing in real estate is a fantastic way to build long term wealth.
Whether you’re considering becoming a property owner or have already invested in a rental property, these tips will help you get the most out of your investment.
Rental Properties as Investments
Purchasing a rental property is a great way to gain exposure to the real estate market, but it’s important to approach rental properties as long-term investments. Becoming a landlord will not make you rich overnight.
You can expect a great return on this type of investment if you pick a good location, keep your property in good shape, and do your best to provide tenants with a comfortable place to live.
Follow these steps before investing in a rental property:
1. Look for an ideal location. Finding tenants and collecting rent will be easier if your property is in a safe area where tenants will have access to jobs, transportation routes, conveniences and be able to send their children to good schools.
2. Have an expert inspect the property before you buy. Any signs of structural damage, mold, or pest infestation will result in additional expenses for you. An inspection will help you be prepared financially for expenses that will arise in the first 5 years of ownership.
3. Have the Real Estate Agent help you figure out the capitalization rate. This will give you a better idea of what the market and the risks are like in the area you’re interested in.
4. Come up with enough cash to cover 20 to 25% of the asking price. You might also have to cover the remodeling costs if the property needs some work. An emergency fund is also great to have for each property you purchase– ensure you are prepared for surprise expenses as they come up.
As the owner of a rental property, you’ll have to keep investing money over the years to keep your property in good shape. Inspect the property regularly and perform repairs as quickly as possible. This also keeps your tenants happy and more likely to report needed repairs (which is great)! Upgrading your property will make it easier to attract tenants and maintain its value.
Pros and Cons of Investing in a Rental Property
Becoming a landlord isn’t for everyone. Being aware of the pros and cons of this type of investment will help you determine if a rental property is a good choice for you.
Pros of investing in a rental property:
-You’ll generate a monthly income by collecting rent.
-Your property may gain value over the years if you pick a good location.
-You can use the property as leverage. This means you can borrow to finance your investment or use the property as collateral for another loan.
-There are tax advantages. If there is no cash leftover after covering expenses and paying your mortgage, you won’t have to pay taxes on the income from the property. You can also claim your home office, fuel and a portion of phone and other expenses against rental income.
Consider these downsides as well:
-As a landlord, you’re liable for accidents on your property. Liability insurance is a must!
-Dealing with tenants can be difficult.
-You’ll lose money if your property remains vacant for too long.
-Unexpected expenses will come up, which means you might not generate a profit for a while.
-Your rental property might lose value. It’s important to pick a location where property values are rising.
Still not sure where to start? Contact Candice to begin your journey as a landlord. She will provide the education and accountability you need to find profitable properties in your local market.