The real estate industry is indeed a very lucrative industry. In fact, it’s produced some of the world’s wealthiest people, so it’s understandable why you think it’s a sound investment and want to join the industry yourself. However, as with any other investment, it’s important you educate yourself and become well-versed before taking your savings and loans and investing thousands of dollars into it.
If this will be your first time making a rental investment, here are some important considerations to think about first.
Consideration 1: Are You Landlord Material?
Essentially, when you buy a rental property, you’re automatically taking on the role of landlord by default.
Do you know how to unclog a toilet? How well can you repair or patch drywall? Can you caulk and seal cracks around the doors and windows of your property?
These are all questions you need to ask yourself before making such an investment. Sure you could always hire for maintenance services or simply hire a property manager to run everything for you but that will dig deep into your profits. Most property owners with one or two homes often do repairs and maintenance work themselves to cut costs.
As you acquire more properties, you can then start hiring for repair and maintenance services. But if you’re not very handy or don’t have enough extra money for regular maintenance of your property, being a landlord may not be a sound investment for you.
Consideration 2: Check Out Your Financing Options
One of the biggest things to look at when investing in rental properties is weighing out all your financing options. This particular process can be a little overwhelming just for the simple fact that there are so many options to look at… Should you go with a 15 or 30-year mortgage? Will a fixed rate work for you or will an adjustable rate be better?
There are so many different options with so many benefits that it’s crucial to weigh out all your financing options to ensure you’re making an informed decision on the best rental loan that suits your financial situation and real estate investment goals.
Consideration 3: Finding the Right Area For Your Rental
Well, realtors say it best, “location, location, location!” And it’s the honest truth, according to the Washington Post. With it being your first time getting into the real estate market, the last thing you want to do is buy a property in an area that’s not progressing or growing. Ideally, you want to invest in a property located in an area with low property taxes, a low crime rate, and has a good school district. You also want to make sure the area has access to public transportation and is in close proximity to local attractions like parks, shopping, and recreation.
Consideration 4: Unexpected Costs
When investing in real estate rental properties, it’s always best to expect the unexpected, especially in terms of costs. Maintenance and repairs are going to dig into your rental income, but that’s to be expected. But things like busted pipes flooding a kitchen from cold weather or broken windows and roof damage from a storm are all financial emergencies that can arise that you will be responsible for repairing.
You, of course, want your tenants to be safe during a storm and flooding but these occurrences do put a financial strain on you, as a landlord. As your rental income starts to grow, you’ll want to set aside 20 to 30 percent of that income for emergencies such as that. That reason alone is what brings us to the next consideration.
Consideration 5: Landlord Insurance
When you invest in a rental property, one of the first things you’ll want to do is protect your investment with landlord insurance. Now, this isn’t the same as homeowners insurance; Once you became a landlord, that property became a business and you’ll need homeowners insurance plus landlord’s insurance to protect your property and tenants.
Typically, with landlord’s insurance, you’ll get coverage for property damage, loss of rental income, and tenant liability coverage. Where the savings will come in is if you can find an insurance provider that offers bundle plans that will allow you to bundle your homeowner’s and landlord insurance together.
These are just a few considerations to think about. But the most important thing to think about is that just because you want to invest in real estate, that doesn’t mean you should. Seriously, look at these and other considerations to see if investing in your first rental property is a sound investment for you.