Making money by investing in real estate continues to be popular in the United States. With the rise in home prices and many millennials preferring to rent, many see investing in rental property as a viable option. It is a low-risk investment with good returns.
If the prospect of investing in real estate and becoming a landlord has piqued your interest, you should ask yourself a few key questions before diving in. It’s nice to do your homework before going into the business to prepare for all sorts of aspects beforehand.
1- Make Sure Managing A Rental Property Is A Right Decision For You
Many people assume investing in a rental property is a hassle-free way of earning passive income. However, that is mostly not true. A lot of times you will end up spending time and energy looking after the property and managing tenants. When you own rental property, you’ll need bookkeeping, plumbing, and legal knowledge. A good landlord must also have excellent interpersonal skills. Do you have any idea who might make an excellent tenant? Are you able to defuse potentially tense situations? So, before you jump in, think about if you have the time, inclination, and aptitude to manage a rental property.
2- Keep A Budget For Future Expenses
Calculate and keep a check on your finances and cash sums beforehand so you can maintain your property in the long run. Investing in a property doesn’t mean just a one-time payment made at the time of buying. A rental investment comes with a slew of additional expenditures, including property upkeep, insurance, utilities, and more. There will always be expenses for maintaining the property after the tenants move in, such as the need for a new roof, plumbing problems, electrical fixtures, etc.
3- Know Your Mortgage Options
How are you planning to fund the payment of your house? Are you planning to opt for government-backed loans such as FHA, VA, and USDA loans or conventional loans? Make sure to research each one in detail to know the different requirements for credit scores, down payments, and closing costs. Also, decide if you want to opt for a fixed-rate loan or an adjustable-rate loan. Your choice will heavily affect the future down payments you will make.
4- Deciding On The Right Location
Location is the first and foremost factor in determining the attractiveness of your rental property. Access to utilities, nearby grocery stores, good schools, parks, and a safe neighborhood are all factors that add up to a good location. The right location will help you earn more profit as the rental prices are higher. Of course, the house prices will also be high, but you will reap the benefits in the long run.
5- Decide On The Type Of Rental Property To Opt For
Should you opt for a single-family home, condominium, or multi-family home?
- A single-family house provides a tiny initial step for investors who wish to ease into the role of real estate ownership and leasing. You’ll just have to deal with one group of renters, and the administrative side of the work will be simplified.
- You can also opt for real estate investment by purchasing a single unit in an apartment building. However, you should be mindful of any rental limits imposed by the co-op or condo boards.
- These can range from two-family duplexes to multi-family homes with 5, 10, or 100 units. Multi-family homes offer some apparent scale advantages if you want to go big. You’ll have one for each facility, making it easier to manage maintenance in one location rather than several locations.
6- Protect Property With Landlord Insurance
It is suggested that you obtain landlord insurance in addition to planning for an unanticipated event. This covers property damage, loss of rental revenue, and liability protection in the event that a visitor or tenant is hurt as a result of a property maintenance issue. Check with your insurance provider to see if you can bundle landlord insurance with a homeowner’s policy to save money on insurance.
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