It is not a job for everyone, but with the rental market being what it is, becoming a landlord is one smart way to build wealth.
The demand for rental units is continuing to remain strong. The failure of wages keeping up with the high cost of housing has a lot to do with this. Some point to the housing market collapse in 2007. Since then, rentals have risen steadily while homeownership has declined.
While home prices have rebounded in many parts of the United States, they are still only projected to go up about 3 percent for the year. This provides a clear picture of just how favorable investing in rental real estate is.
At the same time, this does not mean that being a landlord is a way to get quick fast. Renting properties out is a long-term investment and it should be approached carefully. If you have already thought about it and are ready to become the next real estate rental mogul here are six smart ways to get you started.
1. Realize that a landlord is a business professional.
Being a landlord means being in business for oneself. It is different than homeownership. You have to treat it like the profession it truly is. This means that whatever property you buy has to be a good business investment. It's best not to approach it like it is a house you want to live in.
The property has to appeal to the types of tenants you want to rent to. In addition, one big criteria is to be able to qualify for any loans on that property. This means having at least 20 percent of the down payment ready to go. If you have already purchased a rental, your income has to be sufficient to pay your own mortgage as well as the rentals.
2. Start out small.
One way to make sure you are cut out for this business is by starting off buying a single-family home or a small multiple-dwelling unit. Single-family residences are among the easiest investment properties to buy.
Condominiums require larger down payments as well as monthly association fees.
Starting small with a single family home gives you a feel for the maintenance, responsibilities, and bookkeeping required. Dion Cheng suggests that you buy a simple property at first – one that has simple, easy-to-maintain features.
3. Don't invest in a place you don't know.
In real estate it is all about "location, location, location," and nothing could be truer when it comes to rentals. A place might seem like a bargain if it is in a neighborhood most people would not want to live in. Do not buy property out-of-state if you do not know the location. Stick to property locations you know well.
4. Determine the appropriate rent.
These sums differ throughout the United States. Get an idea of rent prices from Craigslist and real estate sites and agents when shopping around. Determine if the rent will cover your operating costs.
Many people think that if they can cover the loan they are fine. But, you also have to pay for taxes and insurance. You also have to cover any potential vacancies and maintenance or repairs.
Forgetting to budget for repairs is a common problem. You need money on hand to deal with maintenance expenses. Things will break.
You also need to make sure that you understand the rate of return that you will get on your investment. You can use formulas such as the capitalization rate to help with figuring this out, but it also helps to get professional help. Speak with an accountant to be sure your purchase is lined up for success.
5. Be willing to start working on rolling up your sleeves.
You want to get your hands dirty by taking care of managing your first property yourself. This will help you get the idea of it and it can be done especially with a single-family home.
Are you good with tools? That is even better because you will save money on hiring electricians or plumbers whenever something minor needs to be repaired or replaced. If you have been putting off fixing a leaky faucet in your home you might want to rethink becoming a landlord.
Don't forget that you also need a thick skin. If the idea of calling a tenant to find out where the rent check is you might want to find other work -or at least hire a property management company.
6. Get professional help when needed.
Even if you have confidence in managing a property yourself, be sure to consult with a real estate attorney as needed. Get informed on the lease agreement standards and on the rights of your tenants. An accountant is helpful, too. Also, get a good line up of tradespeople like plumbers and electricians together for times when you need them.
At Omni Real Estate, we can help you with this entire process. Our experience can help your first experience in property management a pleasant one.