Managing a rental property can be a lucrative business because of the increased activity in the current market. If you want to augment your income by renting out your house, or you want extra money to pay for your mortgage, becoming a landlord would be a good option.
While other investors are making money through buy and sell, there are also investors who prefer to make a stable cash flow through renting their property. This way you won’t have to let go of the property to earn a profit.
When choosing a tenant, make sure that the rent covers your mortgage payments and other expenses like taxes, maintenance and utilities. So what else should you keep in mind before becoming a landlord?:
The Basics of Property Investment
Investors usually pay a higher down payment compared to regular home buyers. Owner occupants can pay 3%-5% down payment while the minimum for investors is 20% – 25%. According to this year’s Investment and Vacation Home Buyers Survey by the National Association of Realtors, most investors paid for their property in cash. For those who used financing, the average down payment for 2013 was 26%.
If you’re going to purchase a new property, you’ll need to have good credit and low debt-to-income ratio for your mortgage to be approved. You also have to remember that aside from the mortgage payments, you’ll have to pay for recurring fees like taxes, routine maintenance and repair.
You can ask your lender to credit potential rent payments as income if the property you’re buying has an existing tenant or has a solid history of tenants. You also have to make sure that you have enough of a nest egg to cover the months when the property is vacant. Your mortgage payments don’t stop just because you have no tenant.
Buying Rental Property
Before you decide to buy a property, you have to determine first whether it will be a good investment. There are several factors to consider icluding location, accessibility, amenities and the price. You also have to determine what type of tenants you want to have based on the neighborhood you have chosen.
For example, neighborhoods with good schools are attractive to family with kids while single tenants prefer neighborhoods with lots of amenities. Tenants who are working also look into the location and ease of commute.
Aside from the neighborhood, you also have to decide on how you are going to manage the property. You can personally manage the rental unit and take care of everything, but that would take much of your time. There are landlords who prefer to hire property management firms to deal with the transactions related to the rental property, especially if they own several properties. It eases the burden but it usually costs 6% to 10% of the monthly rental payment.
Screening Potential Tenants
It is very important to find the right tenants for your property. You want to find someone who pays rent on time, and takes care of the property as well. If you’re personally managing your property, then you’ll have to do all the background checks like credit and criminal history. However, if you have a property management company looking after your rental apartment, it will be part of their responsibility to screen all potential tenants.
In summary, being a landlord can open up many opportunities for you in the real estate investment market. But you have to know the methodical and effective approach in buying rental property, and learn where to solicit professional advice in order to succeed.