It seems like everyone is jumping on the real estate investment bandwagon these days, with the rental market becoming increasingly competitive and allowing landlords to charge ever increasing prices. While becoming a landlord can be a wonderful way to supplement your income, it’s not without its fair share of challenges, contrary to what the popular shows on HGTV might have made you believe. If you’re considering an investment in rental properties, take these factors into mind first.
- The Amount of Responsibility
Deciding to become a landlord is no small endeavor, and taking on the responsibility that comes along with renting out personal property can be overwhelming if you’re not prepared. You’re responsible for more than just filling the apartment. Maintenance and repairs will fall on your shoulders, you’ll have to remain (to a certain degree) available to your tenants at all hours of the day and night, and you’ll also be opening yourself up to a host of liabilities should anything go wrong. If this sounds like too much responsibility or too time consuming on top of your other responsibilities, you may want to consider hiring a property manager to handle the daily ins and outs of the process for you. They will place tenants, deal with evictions, and remain up to date on all the hairy legalities of the process, but this route is not without its downside—most property managers require at least 10 percent of your rental income each month as payment.
- Your Income Potential
This is an investment, so make sure the potentiality of your income is worth the purchase price. How much can you actually charge to make you a competitive option for searching renters? Do you have the funds to cover your expenses, both in the rental and personally, should you have a prolonged vacancy for whatever reason? You’ll have to worry about mortgage payments, tax increases, and more, along with repair expenses that can become more costly than you might imagine. Make sure the income you’ll have from your property will cover all this and more if you want to turn a profit.
- Focus on Location
It’s all about location, location, location. Before purchasing any property, consider its geography. Most renters are looking for homes that offer local amenities and easy access to restaurants, bars, schools, and other public offerings. Look for a home in a great school district, consider the crime rates, and get the lowdown on property prices and rental rates from other local landlords. What has the property value trend been over the last five to 10 years? Increasing, decreasing, or staying relatively the same? There are a multitude of facets to consider in regards to location, so do your homework before throwing down money on a property.
- Finding the Right Tenant
You might dream of a great relationship with your tenant where it’s all sunshine and roses, but more often than not this isn’t the case. Make sure you take the time to vet all prospective renters and place the right person in your property. The goal is high-quality, long-term tenants, so you’ll want to know more than just a credit score. Use a company like MySmartMove to get all the information you need, from eviction histories to any criminal convictions. This will ensure you can make the most educated decision possible, and hopefully land yourself a great tenant right out of the gate.
- The Continuing Costs
You’ll need to have money in reserve to handle any unexpected expenses that come up, and enough to cover the monthly and year expenses that may appreciate over time, including insurance, landscaping, and updates to the property to keep it up to code. It’s unwise to enter a real estate investment with the idea that you’ll gain back your purchase price within a short amount of time. Rental properties present income to you in more of a marathon manner—don’t expect a sprint into fortune.
Choosing to invest in a rental property isn’t a decision that can be made lightly, and it should only be decided upon after much research and weighing of options. If you’re looking to become a landlord and supplement your current income, take these issues into consideration before pulling the trigger.