Rental Property Investing 101
When it comes to purchasing your first rental property there are a few things to take into consideration before you invest in any home. You also need to ensure that you have set realistic expectations because as with any investment, a large profit does not happen overnight. Not to discourage potential buyers seeking rental properties to invest in. However, deciding to invest in a property strictly for rental purposes & as a means of income is a big decision and a number of factors should be considered before making your final decision.
A serious question to ask yourself is if you are really cut out to be a landlord. Are you handy and able to make small fixes around the property? This trait could help to save you a lot of money on DIY small repairs. Are you good at dealing with people in potentially uncomfortable situations?
Affording The Down Payment
Rental properties are not eligible for renters insurance and thus usually require a bigger down payment than owner-occupied properties. Expect to put at least 20% down in terms of a down payment.
High Interest Rates
You need to be extremely careful about the high-interest rates that can come with investing in a rental property. In fact, interest rates are usually higher for investment properties than they are for traditional mortgages or owner-occupied properties.
Factor In Other Expenses
You also need to factor in other hidden expenses you may not be thinking of right off the bat. You will be responsible for property taxes and possibly homeowner association fees if applicable, homeowners insurance, maintenance, plumbing & other repair expenses.
Margin of Safety
Take a look at your personal debt and make an educated decision on if investing in a rental property at this time is right for you. Yes, with some investors it is savvy to carry debt as part of the portfolio strategy. But to those that have more debt than they can afford or have loans or other unpaid bills that need attention, now may not be the right time to invest.
While there are numerous other important factors to consider before jumping into the rental property real estate pool, the above outline are the first important factors that should be taken into consideration. Deciding to purchase an investment property can end up being a business-savvy decision and providing a high return. It is just ensuring you begin the process the right way from the very beginning. As well as work with a reputable & trustworthy real estate professional.