A rental property can be a great investment to help you secure your financial future. However, just like with all investments, being armed with the appropriate knowledge and tools can help streamline the process and help safeguard you against certain pitfalls.
This month, we’re talking about the five initial steps you should take when it comes to laying the groundwork for purchasing a rental unit.
Determine what you can afford
Part one of accomplishing your goal is figuring out (1) what kind of property you want to invest in and (2) if that unit is going to be affordable to you. Keep in mind that it’s not just your personal income that you need to be mindful of. You’ll also want to factor in your rental income, as that’s going to help you offset a good portion of your costs.
Talk to different financial institutions and mortgage brokers to see what mortgage values, options, and rates are available to you based on your current and projected levels of income. Once you know your numbers, then you’ll want to look at the current rental market as well as homes for sale. What can you purchase that allows you to set a rent payment higher than that of your mortgage payment? Potential tenants will compare homes in their price range, so you can’t just set an arbitrary rent number!
Another factor to consider when totalling up your numbers is the amount you’ll need to supply for additional costs, including a down payment, items such as insurance, closing costs and a slush fund for renovations or repairs.
Once you’ve figured out what you can afford, you can start creating a more comprehensive financial gameplan.
Outline your budget
Purchasing a rental property is a sound way to bolster your finances… or it can be if the numbers make sense. That’s why it’s important to outline a budget before you move into any kind of real-estate ownership.
Beyond the upfront costs that we discussed in step 1, you’ll also need to prepare to pay the monthly expenses that come with owning a property. These costs include property taxes, insurance, and upkeep.
Being a landlord also comes with certain financial responsibilities, so you’ll want to have money set aside for expenses such as damage incurred by your tenant, any household repairs due to wear and tear or weather damage, and mortgage payments in case you can’t find a tenant to rent your space.
Homeowners insurance and landlord insurance can help you offset some of these costs, and it’s well-worth investing in these additional layers of protection to safeguard your investment.
Search for the ideal property
When we reference the ‘ideal property’, we’re talking about the different factors that make a unit desirable for both you and potential renters. To identify if a potential property is the right fit for you, ask yourself the following questions:
· Is the surrounding area desirable? Aim for communities where the population is growing, the crime rate is low, and the job market is either strong or improving. You should also look in neighborhoods that have high rental demand, as this will help safeguard you against long vacancy periods.
· What is the going rate for similar rentals? You’ll need to price accordingly, so make sure the home you choose allows you to break even or gain even a little income each month.
· What amenities are nearby? Close by amenities, such as schools, shops, restaurants, hospitals, trails, and parks, make certain rental properties more desirable. Do a tally of what’s in the vicinity of your potential rental property to see if it has renter appeal.
· Is transit accessible? Locations that have easy accessibility to transit are often preferable, especially if your potential renter doesn’t have their own vehicle.
· How close is it to your home? Regular visits and maintenance are a part of being a landlord. If you’re planning to manage those tasks yourself, having your rental property close by is worth considering.
· Is the property in current need of repairs/renovations? It’s normal for pre-existing units to need some repairs due to wear and tear. But if a potential property needs a major overhaul or is going to require serious upgrades to improve its desirability, you’ll need to make sure that those costs are not only feasible but worthwhile in the long run.
Educate yourself about landlord and tenant laws
Knowledge
is power. And, on the flip side of that, a lack of knowledge can leave you
feeling powerless.
Before you commit to being a landlord, do your due diligence on what’s involved. This includes finding out about your local landlord association and tenant board, knowing the landlord-tenant laws specific to your area, researching about your rights and responsibilities, and knowing how to appropriately handle different situations that may come up with your tenant.
Some of the most common topics that you’ll want to ensure you have a good grasp on are how to choose tenants, what property maintenance and repairs you’re responsible for, and the process for eviction should your tenant not work out.
Fines can be issued to landlords that don’t meet their mandatory obligations so it’s important to know what those are to avoid costly mistakes.
With appropriate planning and insight, owning a rental property can be very rewarding experience that can aid you in building a financially secure future. You can benefit from having a steady stream of rental income and can also reap the rewards if/when your property value rises.
At ChalkMark Residential, we strive to create properties that our buyers will fall in love with. Whether you’re looking to find your forever home, or want to create the perfect rental space, we help turn dreams into reality by providing quality care and professional insights that can’t be matched anywhere else.