3 Things to Know Before Buying Your First Rental Property
Did you know that real estate is one of the top investments? If you’re considering buying a rental property, we can help.
In this guide, we’ll go over what you should know before you buy your first rental property.
Want to learn more? Keep reading.
1. Are You Able to Invest the Money?
People who buy investment properties need to have high financial stability. If you want to rent the property to tenants, you’ll need to have extra resources.
Mortgage lenders want borrowers to have a 15 percent down payment.
An investment property owner will need to have their rental cleared by inspectors. You will need to do this before tenants move into the property.
You’ll need enough money to cover the inspection, the down payment, and closing costs. As an investment owner, you’ll also need money for repairs and ongoing maintenance.
Rental property owners need to finish repairs fast. For example, you might have to deal with an expensive repair like plumbing or a broken HVAC system.
You’ll want to budget extra money for emergency and regular home repairs.
As a landlord, you’ll need to spend money on advertising your place. You’ll also need to pay for a credit check when choosing tenants. Bad tenants will end up costing you more money.
2. Will You Make Money off the Property?
As an investor, you should figure out the return on investment before buying a property. To calculate the ROI on a potential property, you’ll want to figure out the annual rental income.
Look for properties like the one you’d like to buy and find out the rental cost. Then, multiply that amount by 12. Once you estimate the rental income, figure out the net operating income.
You need to minus annual operating costs from the annual rental income. Operating expenses include everything you spend to maintain your property.
Expenses can include maintenance, insurance, property taxes, and any homeowners association fees. Take away the operating costs from your rental income to get the net operating income.
3. Can You Manage the Property?
As a property manager, you will need to interview tenants and run background checks on them.
You’ll also need to do maintenance and repairs around your tenant and work around their right to privacy. You can’t drop by the property at random but need to provide 24 hours notice.
Before you buy the property, consider if you’ll have enough time to maintain the space. You could always hire someone to manage your rental property. Check out more here.
What to Consider Before Buying Your First Rental Property
We hope this guide on buying a rental property was helpful. If you’re buying your first rental property, make sure you have time to maintain the investment.
You’ll need a higher down payment and resources available for emergency repairs.
Are you looking for more tips? Browse our home and real estate resources.