Investing in real estate has made many people very well-off. For that reason, it can be an excellent way to invest your money for the future. However, it’s important to understand everything about investing in rental properties before you get into the real estate game. It’s not an investment that you should enter into lightly and fully researching everything you need to know before getting started is the best strategy.
Learn a Landlord’s Responsibilities
The first step to determining if you’re cut out to be a landlord. An investment property is a good way to make money, but it’s also a responsibility. Landlords and landladies have to take care of the property they’re renting out and ensure that it’s kept in good condition for the tenants. If there’s a plumbing problem, that’s the landlord’s responsibility. If the front steps need to be repaired or replaced, that’s also the landlord’s responsibility. The landlord may receive calls from the tenants at inconvenient times to handle problems with the property.
Decide Whether or Not to Hire a Property Manager
Many real estate investors choose to hire a property manager to take care of their properties instead. If you have only one rental property, then you may be able to manage it yourself. However, if your intent is to increase the number of rental properties that you own over time, you won’t be able to do it all yourself. There just won’t be the time. Hiring a property manager is an expense, but one can be well worth it if you want to build up your property portfolio.
Budget for Your First Property
Once you know what you’re doing and how you plan to manage any rental properties that you own, you can start budgeting to purchase your first property. Unless you’re an extremely savvy investor, having debt isn’t a good way to start out your foray into the real estate market. Pay down debt first and then budget to purchase the first property and make sure it’s ready for tenants.
Decide Between Financing and Paying Cash
Budgeting for a rental property is essential because if there are higher down payment requirements for a rental property than there are for primary residences. This downpayment can be up to 20% of the total cost of the property. There are multiple ways to buy a property. You can pay in full in cash or you can take out a mortgage on the rental property to finance it. Which is best for you depends on your budget and your finances.
You may want to consider hiring a financial advisor to help you determine your budget and decide whether it’s better for you to finance or pay in cash for the property.
Buy a Property in the Right Location
Once you have all of your financial ducks in a row to purchase a rental property, it’s time to buy one. Location is essential, however. You don’t want to buy a property only to find that people are moving away from that area. You’ll need to look for an area that is up and coming, where there are nice amenities, low crime, low property taxes, and access to public transportation.
