Are you thinking you might try your hand at becoming a landlord? Of course, you are, and why not? The real estate market has made many of the world’s richest people, so it’s a good career to get into if you know what you’re doing.
Here are several tips to follow and consider when you’re out there searching for your first rental property.
When you first start out as a landlord, you likely won’t have tons of money just lying around to hire contractors and repairmen to maintain and fix things around your rental. In the beginning, you will need to rely on your DIY skills and make these repairs yourself.
Of course, later on, when you’ve become more successful as a landlord and you own several rental properties, you’ll probably build a team of reliable people to handle this kind of work for you. Until then, however, repairs fall on you. So, if you’re not handy and you aren’t rich yet, consider this tip seriously and decide if being a landlord is really for you.
If you have student loans or lots of credit card debt, it’s a good idea to pay your debt down before trying to purchase your first rental property.
Unless your return on investment (ROI) on the rental property is more than the amount of debt you owe, it’s a good idea to get rid of as much debt as possible to free up as much cash as you can.
Rental properties play by different rules than primary properties, so don’t expect to put down only 3 percent as you did on your own home. Rental properties usually require a 20-percent down payment and the approval requirements are a lot more stringent.
Be sure you have at least 20 percent of the purchase price available when seeking approval for your first rental property.
Interest rates on rental properties are usually higher than those on a traditional owner-occupied mortgage. Having said that, it’s important to watch out for lenders offering high-interest rates as they can eat into your monthly profits. Don’t be afraid to compare lenders and loan terms to find one with an interest rate you can handle.
When you purchase your rental property, you’ll have homeowner’s insurance. In addition to this, you should also take out landlord insurance as it will protect you in the event of property damage, rental income loss, and liability should a tenant or visitor get injured due to a maintenance issue while on the property.
Maintenance and repair costs aren’t the only things you have to worry about as a landlord. For example, if there’s a hurricane and the property sustains roof damage, you’ll need to get it fixed right away. If a pipe bursts in the kitchen and water ruins the floor, you’ll need to replace it immediately.
Make sure you put aside at least 20 percent of your rental income to address emergencies like these without having to dip into your savings.
Deciding to buy your first rental property can be exciting, but it’s important to remember that there’s a lot of responsibility that goes along with it. As you embark on becoming a landlord, be sure to keep these tips in mind.