Real estate is still a great investment, if you know how it’s done—check out these tips before you buy.
With the real estate market recovering, prices are low, and it’s an ideal time to buy rental property—but obviously it’s not as simple as signing on the dotted line. Being a landlord can be low-stress, fun, and profitable; but it can also be a real struggle if you make uninformed buying and renting decisions. Here are some basic tips to help you out as you consider whether you’re ready and willing to take the plunge.
1. Be aware of your responsibilities as a landlord
Rental properties are not an investment you can just buy and forget about; if you want to be a landlord, you take on the responsibility of screening potential tenants, responding to repair requests, collecting rent, etc. If you can’t handle (or don’t want) the extra work that goes with renting, you can always hire a property manager, but that’s another choice you have to consider carefully. Having an employee associated with your investment has headaches of its own, not the least of which is cutting his or her wage out of your revenue.
2. Make sure you’re financially ready to make the investment
If you want to mortgage your rental property, expect to pay 20 to 30 percent down, with a higher interest rate than your primary residence. It is also extremely risky to operate the property if you can’t afford several months’ worth of vacancies—people move in and out, and you won’t always find a new tenant right away. To ensure good terms on your mortgage, get a copy of your credit report and clean up any outstanding debt that might be holding back your credit score
3. Get a real estate agent you trust
A good real estate agent can do your research much more quickly and efficiently than you can. Make sure your agent has experience in real estate investment in particular (as opposed to buying and selling primary residences), as locating and negotiating on a rental property requires a different skill set. Look for an agent who will work with you throughout leasing and managing your property, instead of just negotiating the sale and taking off. Once you’ve found your agent, explain exactly why you’re investing, how much you can afford, and what kind of risk and return you’re looking for.
4. Stay informed
Your real estate agent can be a powerful ally, but make sure you’re a partner in the research process. When you have an idea of what sort of property you want, tour similar properties in similar areas (preferably with a long rental history) so you’ll have a good ballpark estimate of what you can charge for yours. To maximize your return, partner with your real estate agent to find features that tenants are willing to pay more for: for example, basements, garages, and the ideal number of bathrooms and bedrooms. Which locations are most valuable? Would furnishing the apartment be a worthwhile investment?
5. Get any potential property inspected
Even if you’re a handy man or woman looking for a fixer-upper, getting a licensed home inspection is not optional. An inspector can find problems with a property that are expensive or impossible to repair, such as asbestos, radon, black mold, and termite damage; and even if you plan on making repairs yourself, you need to be aware of everything on your to-do list. Be wary of homes that require non-cosmetic repairs—in addition to the cost, repair time can take longer than you’d think; and then you’re stuck making payments on an empty property.
6. In addition to the inspection, get a repair estimate from multiple contractors
If your state’s law prohibits the home-inspector for making cost assessments, you need to bring in contractors. For each problem, request estimates from several contractors, and then add 25 percent to the price of whichever you choose. Whichever contractor you go with should provide a guarantee that, barring uncontrollable circumstances like weather, the repairs will be done within a certain time frame.
About The Author
Karen Davis is a real estate investing mentor from Houston Texas. Karen began as a member at Lifestyles Unlimited in 2008, and has since bought and sold 12 single family properties. She became a Mentor and Trainer and currently owns 8 single family properties.