Picture this: Cash rolls in like clockwork every month, and you don’t have to do a bit of work to get it. Right!!!
That’s the promise of rental properties. In theory, they are passive cash-generating machines that deliver you money every month with little to no effort on your part. however, they can be a real pain in the ...you know what.. or, worse, a drain on your wallet.
If you are serious about owning rental properties, then I recommend that you do some research. There are many great books on the topic and I also suggest that you familiarize yourself with the Landlord and Tenant act
For everyone else who is playing with the idea of buying an income property, here is a rundown of the basics.
5 things to weigh before buying
Not every property can be turned into a moneymaker. Some houses are destined to be duds. so please keep these things in mind when searching for that purchase:
- Prospective renters: Who is renting in your area? Is it college kids who might be happy with a couple of small rooms to call their own, or families who need more space to spread out? More importantly, will the property you’re looking at meet their needs?
- Neighborhood: It does’t matter how nice the house is, a property in a bad neighborhood is probably not going to rent at top dollar. Plus, a high-crime area may boost your insurance costs and could make your property a nightmare to maintain if vandals frequently make the rounds.
- Price: For this, you need to consider not only the price you’ll pay for the property but also the price you can reasonably charge for rent. What’s more, will the latter cover the monthly mortgage payment if you end up financing the purchase?
- Taxes and insurance: The list price should be only part of your cost analysis. You also need to estimate the property taxes and insurance you’ll be paying annually. Depending on where the property is located, these costs can make a reasonably priced property unaffordable.
- Condition: Tenants don’t always make decisions based on price alone. They will also take into consideration the condition of your property. Be realistic about the amount of work a home will need to be marketable, and have it inspected just as you would with any other major purchase.
Once you find the right property at a price you can afford, the next step is to figure out how you’re going to manage it.
Here, you have two choices. You can do it yourself, or you can hire a property manager. Property managers will cost you some money, but you may find their services are worth the price.
5 ways to get good tenants
If you’re using a property management company, it will likely be responsible for finding good tenants for your property. keep in mind that if you would like to manage your own property then there is also leasing services out there to help with just finding the tenant. If you’re doing it yourself, here are five tips to help find decent renters.
- Perform reference, background and credit checks: It’s not enough for a potential tenant to simply provide references. Instead, you need to call and speak with those people to confirm they do indeed have good things to say about your applicant. Also, while it may cost you a little money, you’ll want to run a criminal background check and perform a credit check to look for potential red flags.
- Have a face-to-face conversation: When taking rental applications, arrange to meet potential tenants and take them on a tour of the property. It offers the opportunity to have a conversation without the pressure of a formal interview. Another tactic could be to meet applicants at their current residence to see how clean and well-maintained they keep it. landlords are prohibited from denying a rental application for reasons such as race, religion or family status.
- Require a deposit: Requiring a deposit serves as a form of insurance for your property and can also weed out any applicants who may not be able to pay the monthly rent. make sure you understand the laws concerning deposits. If you’re renting to someone with pets, you might want to charge an additional amount to accommodate any pet-related damage.
- Have a formal lease agreement: A handshake is not enough to protect your investment. You need to have a formal lease agreement drawn up. A good agreement goes beyond listing the rent and deposit. It should spell out who is responsible for what and what’s included in the rental price: utilities, yard work, and so on. Before you pay big bucks for a lawyer to draw up this agreement, see if there is a rental housing association in your area. These groups may provide their members with standard forms for the lease agreement, lease application, pet addendum and more.
- Complete a pre-rental checklist: Finally, before your tenant moves in, take one last tour of the property with him or her. This time, bring along a pre-rental checklist. Use this checklist to note any existing issues to the property, such chipped drywall or scratches on appliances. Both you and your tenant should sign the checklist. That way, you can refer to it later if there is any question about whether damage was caused by the renter.
Rental properties can be a great way to start building your portfolio and if done properly can provide you with the financial needs to accomplish anything you wish to do in life but like I mentioned, if you do it wrong it could cost you allot more then you bargained for
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