Investing in real estate is something that everyone with the means considers at some point in their lives. This is especially true in the current climate since investing in any new-high stock market seems risky and defaulting to real estate appears to be a viable option.
Having a hard asset is seen by most investors as a way to diversify from the stock markets. Still, to do so, it is essential to know if you are the type of person to handle being a landlord. Here is some guidance to follow before dipping your toes into the real estate market with a rental property:
Run the numbers
There is no point getting involved in the rental game if the numbers don’t make any sense. Having cash will make the whole process run smoother and likely get you a discount on the property you are buying. Sellers love avoiding banks, speeding up the process, and cutting off a good chunk of fees. Work out what your costs are going to be – taxes, insurance, any mortgage, charges the landlord is supposed to cover – and make sure that the rental income you will be bringing in supports the decision. Especially when it comes to . . .
Have a savings backup
This should read “do not throw all your money into the rental property,” leaving you broke when – and it will be a when and not an if – something terrible happens. Having a cushion is vital – especially as these bad things always tend to occur in the first year when improvements need to be made, or something just fails in general. That old water heater is bound to give up at some point, and it is going to be up to you to replace it to keep your tenants happy, and speaking of keeping the tenants happy . . .
Are you up for the job
Being a landlord is both a job and a responsibility. Hiring a property manager is fine, but that is a costly expense if being the landlord is something you have the time, the patience, and the skills. Being handy is a big advantage, too, as it means you have to hire less help to take on the various maintenance tasks that crop up. However, knowing how to fix a small plumbing problem or put up a fence is not the only area of expertise required. This is especially true if you own a multi-family rental property where being the voice of reason in an argument between tenants to keep the peace is vitally important.
Will the market support your investment
Think carefully about where to invest in a rental house and study real estate before taking the plunge. Knowing where to buy – and then what to charge in rent – is a huge part of being a successful landlord. Some areas are full of rentals, and the market may be too competitive to make inroads without undervaluing the lease. In contrast, others – especially in rural areas – might not have the interest you need to get the money you need. Also, while student rentals are fairly easy to lease, you may rather have loyal tenants who are not on the edge of throwing a party every weekend.
Look for something that will increase in value
If real estate investing was as cut and dry as it sounds, then everyone would have rental properties in the right areas. Anything from changing demographics to the opening or closing of the right industry in an area can swing a great real estate rental investment into a bad one overnight. Betting on economic growth – be it of a town or even a part of a town – is risky. Still, there are huge benefits long term if a house increases in value while you keep renting it out.
Article by Vital Guidance