Written by: Kent Elliot
If you’re financially savvy, you know that wealth doesn’t come from a high paycheck, but from investments that pay you back for years to come. Investing in residential real estate looks like an obvious choice for those seeking to build wealth; not only does real estate provide passive income from rent, but property values also appreciate with time.
Rental properties have long been considered a low-risk investment, but that doesn’t mean it’s the right investment for you. Not only do you need the right location to make a rental property profitable, but you also have to be willing to take on the role of landlord.
Here’s what you need to know before spending your money on a rental property.
The ROI Isn’t Guaranteed
Owning a rental property can be a great way to supplement your income, but not all rental properties offer high returns on investment. Ensure you’re making a wise investment by calculating ROI before you buy. Subtract mortgage payments, property taxes, HOA dues, insurance, property management costs, maintenance expenses, and vacancy rates from the average rent in your area to calculate annual ROI. If turnkey properties are too costly, look into fixer-uppers. Fixer-upper homes sell for less, and as long as the repairs are cosmetic in nature, it won’t cost much to get the property into rentable shape.
Getting Your Rental Business Off The Ground
There are few preliminary steps that need to be considered when looking to start a rental business. One proven step is registering your newly clad business as an LLC. Not only does a Limited Liability Corporation provide personal liability protection, but it also provides other benefits, including flexible tax options. Another crucial step is determining where your rental property will be located. Working with an expert agent at Park Side Realty Group can provide additional insight into the market and where to find the most ideal properties. Having these kinds of connections can also lead to future rental prospects. Lastly, pricing your new rental property fairly will guarantee that it’s always booked.
Being a Landlord Is a Hands-On Job
That monthly rent check doesn’t come without a little effort. As a landlord, you’re also in charge of maintaining the property. That not only means making repairs and cleaning between tenants, but it also includes responding to after-hours lockout calls, emergency repairs, delinquent tenants, and more. Expect to be in regular contact with both your tenants and the professionals you hire to clean, landscape, and maintain the property.
Keeping up with rental property maintenance is difficult, especially if you have a full-time job. However, there’s another option: hiring a property manager. A property manager can handle the minutiae of your rental property for a reasonable fee so you enjoy the returns on your investment without the extra stress and workload.
Tenant Screening Saves Money
Your tenants can make or break your experience as a landlord. Good tenants are a joy to have, but the wrong ones cause more problems than their rent check is worth.
Calling references and doing background and credit checks is a must when finding tenants for your rental property. If you don’t screen tenants thoroughly, you could end up with tenants who damage the home, don’t pay rent, or invite unsavory activity onto your property. Evicting tenants is a long, frustrating, and often expensive process, so it’s worth spending time on tenant screening to avoid it. If working with a property manager, they can handle this process for you.
This information isn’t meant to scare you away from buying a rental property — in fact, quite the opposite! We think that residential real estate is one of the smartest investments you can make. As long as you understand the ins and outs of owning a rental property before you buy, you can make an investment that’s good for your wallet and your schedule.
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