Buying investment property and working as a landlord can be a lucrative career. It’s a method of diversifying your investment dollars. It also offers tax benefits, such as mortgage interest and depreciation deductions.
Owning rental property isn’t always a source of passive income, though; it takes time, money and the willingness to learn about being a responsible landlord. If you’re interested in owning an investment property, here are six tips.
1. Know Where To Buy Property
You’ve probably heard the adage “Location, location, location” in reference to real estate. It is vital to consider location when deciding what property to buy. Some factors to look for include:
- Low crime rate
- Good schools
- Access to public transportation
- Low property taxes
Check with your real estate agent if you’re purchasing property in an area you’re not familiar with. You can also look at online real estate property websites if you’re doing the legwork yourself.
2. Know When To Sell Your Property
It may seem premature to consider selling your property before you’ve purchased it. However, knowing when to sell your rental is crucial to financial success in the industry.
When you are spending more time than it’s worth caring for your properties, it may be a sign it’s time to sell. Initially, you may invest your time and work hours remodeling a property to prepare it for tenants. You may also have an occasional tenant who causes damage or fails to pay on time. You can expect some downturns, but when you consistently lose money, you may need to sell your place. Seek a professional, such as Peter Dodge Bridgehampton, to maximize your profit when listing your rental on the market.
3. Save for a Down Payment
Real estate investors typically need a larger down payment than those buying a primary residence. You can expect to put down between 15% and 25% for a rental property. You may also need three to six months of cash for principal, interest, insurance and taxes.
While saving for your down payment, it’s a good idea to work on your credit score if it’s lower than 620. If you can get it to 740, you’ll benefit from better terms and rates.
4. Set Aside Money for Maintenance
A good rule of thumb is to save between 20% and 30% of your investment property income for maintenance, upkeep and emergencies. Err on the side of caution and plan for sudden, hefty expenses because they can and do happen. You need to have enough money to quickly repair a broken water heater, shattered window or leaky roof.
5. Learn About Rental Law
If you are new to owning rental property, you may have a lot to learn about the laws surrounding it. They vary by state, so understanding the regulations in your property’s location is critical.
Some things to learn about include:
- What can you have in your lease terms?
- When can you raise the rent?
- Are there times you are not allowed to evict a tenant?
- When are you allowed to enter the property?
- Are there building or environmental conditions you are required to disclose to tenants?
You can consult an attorney to understand more.
6. Decide Whether To Manage the Property or Hire a Manager
Are you planning to be the landlord, or will you hire someone to take care of it for you? It’s a vital question to consider. You may spend between 6% and 10% of your income investing in a property management service, which may seem like a big chunk of your earnings. However, you’ll need to consider whether it’s an unnecessary expense or a vital investment.
Property managers take over time-consuming tasks such as vetting renters, marketing the property, ensuring tenants pay on time and handling legal issues. Hiring a property manager can be a good investment if you cannot put the time and resources into these tasks.
You have much to consider when deciding to own investment property. Planning before buying is smart and sets you up for success in the rental industry.
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