Deciding that you want to be a landlord is a big decision? Real estate has the potential to make you wealthy. There are a lot of reasons why buying a property to rent is a good investment. However, before you dive in, there are a few things that you should know.
Here are some things you should think about before you dive into buying your first property.
Are You Ready to Deal With Tenants?
Did you know that a lot of property owners do their own repairs in order to save money? Hiring someone to come in to do all the repairs that will crop up will eat into your profits.
If you decide to hire a property manager this will cut into your profits even further. You don’t have to be the best handyman around but having a basic knowledge of how to fix a few things will save you a lot of money.
Get a Down Payment
A property that you intend to rent will require you to put down a large down payment. If you are seeking a loan you will find the requirements for getting your loan approved for a rental property a little more stringent.
While you may only need to put down a percentage in the single digits for a home you intend to live in, one that you intend to rent will require you to put down a down payment in the double digits.
Calculate Your Profit Margins
You should at least be able to get a 10 percent return on any property you purchase for rent. Estimate the cost of maintaining the property annually, and the many other costs you will have to incur in order to secure the property and then keep it compliant.
This means you must consider property taxes, homeowners insurance, online conveyancer fees, and homeowners association fees among others.
In general, because you are about to rent the property the last thing you should be looking to buy is a home that needs to be fixed. It doesn’t matter how good a bargain the home seems to be if you cannot rent it immediately then you will suffer a loss.
Unless you have a quality contractor or you have the skills to spearhead the project, you are likely to overspend on a renovation. The type of home you should be looking for is one that is below the market value and only needs a few repairs.
Ready to Purchase
Buying your first rental property is exciting. However, you must take a realistic look at what you will gain from becoming a landlord. You need to be prepared to do maintenance on the property. If you can’t do them yourself then you will have to hire someone to do it and this can affect your profit margins.
Avoid homes that need massive renovations no matter how cheap they are to purchase. Consider all the fees you will have to pay and be ready for them. Calculate your profit margins carefully before closing the deal.