Dealing with rental properties is one of the most tempting opportunities for new investors, because of the massive potential for returns. Compared to the down payment on the home, which is a fraction of the home cost, the monthly rental income can provide an excellent accumulation of wealth. While that potential is there, there are some cautionary words of advice to ensure you don’t make bad investment choices.
Buy Based on the Facts
When you buy a home to live in, you’re not necessarily looking at the property for its commercial value. Under these circumstances, you’re buying a home that you and your spouse love, either for its spaciousness, location, or unique features. This type of emotional motivation isn’t going to serve you as well when buying a property as an investment.
To begin, you’ll have to look at the costs versus the income it will provide. You’ll have to take into account the purchase price, the interest you’ll be paying on the mortgage, and the cost of any needed renovations or updates to the property. Based upon the current market trends, will you be making enough money in rent to cover all of those expenses? If not, you’d be better off to look for another property.
Prepare for Lean Times
Ideally, nothing will go awry on the property, and it will always be occupied by a paying tenant. The reality of the situation is entirely different, however. There will be expenses down the road involving the upkeep of the property, so you’ll need to plan a way to cover these costs. A leaky roof or failed water heater are emergencies that won’t wait for long, so you’ll have to get those repairs done quickly.
Additionally, you may have gaps, when the property is vacant. Whether it’s due to a tenant’s early departure or you merely have difficulty finding a new tenant, you’ll still have mortgage payments to cover. This is another reason you’ll need to develop a budget and start building an emergency fund.
Understand the Laws
This means local ordinances, as well as federal fair housing laws. It’s your responsibility to comply with inspections and get those taxes paid on time, so make sure you do your research ahead of time. The last thing you want is to end up in court because you violated a law you didn’t know about.
These are just a few of the things to consider when deciding to invest in real estate. By doing your research ahead of time and making smart investment decisions, you can ensure a higher probability of success. You’re doing this to make money, so take the time to do it right.