Investing in a rental property is a big decision. Although it can be profitable, there are a few things you should consider before getting started. Let’s take a look at the top three things you need to think about before you transition to the role of landlord.
- Unexpected Expenses Can Be Costly
Sure, you want to pick a property that’s aesthetically pleasing and draws potential renters’ attention right to your front door. But the things that are lying beneath the surface of a beautiful exterior can cost you an arm and a leg.
Before you purchase a rental property, you need to get familiar with the bones of the structure, including the details about how old the elements of the home or building actually are. The last thing you want to do is be woken up at three in the morning during a blizzard because the heater went out. While you can’t actually prevent that from happening, you can certainly take proactive steps to ensure the property you’re purchasing is as up to date and as worry-free as possible.
Naturally, you need to have a solid budget set aside for just-in-case emergencies, but there’s also some information you can find out ahead of time to help you determine what your future expenses might look like.
- What findings did your inspector have?Yes, you need to pay for an inspector. In fact, you might even want to get two different opinions. The money you pay for an inspector is negligible in the grand scheme of the problems he or she may find before you sign on the dotted line.
- How old are the HVAC unit and kitchen appliances?If they’re nearing the end of their lives, you might soon need to replace these if the sellers won’t do it for you.
- When was the roof replaced?Roof repairs on unkempt properties can cost almost as much as a new roof if they’re in bad shape.
- Your Tenants Won’t Care if You’re Sleeping
Speaking of unexpected emergencies, your tenants aren’t going to care if you’re sleeping. You need to know that up front!
If you’re considering investing in a rental property, it’s a good idea to look into reputable property management companies in your area while you’re house hunting. It may not be an expense you expected to pay when you first considered becoming a landlord, but you’ll soon find the cost is well-worth a peaceful night’s sleep.
In addition to 24-hour maintenance calls, property managers will attend to:
- Standard maintenance and repairs
- Advertising your vacant property
- Handling the eviction process, which can be costly in both time and money
- Ensuring you’re meeting federal, state, and local compliance regulations
- Screening tenants and running background checks
An investment in a great property management company is just as important as the investment into the right rental property.
- Location Absolutely Matters
You might find a home that’s beautiful in every way, but if it’s in a neighborhood where crime is high, rental prices are low, and jobs are far away, that house is going to be more of a nightmare than a blessing.
It’s important to find a property where renters will actually want to live. Consider the following:
- Are neighboring schools of high quality?
- What’s the crime rate like?
- What are the average rental prices going for right now?
- Do most people own or rent in the area?
- What’s the average income in the neighborhood?
- Is it easy to get to things like grocery stores, parks, and entertainment facilities?
- Have property values increased or decreased in recent years?
Before you find yourself with a money pit that isn’t paying the mortgage, it’s important to assess big-picture items, as well as those related specifically to the property you’re thinking about purchasing.
If you’re considering investing in a rental property, there are dozens of reasons it’s a good idea (in most circumstances). As long as you do your due diligence before you commit to anything—and find reputable vendors and partners who can help you along the way—you should be in good shape to realizing the awesome benefits that come from being a landlord.
Patrick Freeze is the President of Bay Management Group, which manages about 4,000 units in the Mid-Atlantic Region. The company is overseeing more than $700 million worth of real estate as of October 1st, 2018.