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10 Things to Consider Before Investing in a Rental Property

10 Things to Consider Before Investing in a Rental Property

A second income based on a property you own sounds great, but how do you get there, especially if you’re barely more than a first-time homebuyer? Very carefully, of course! Rental properties can have certain payoffs, but they also come with certain costs—and, we’re not just talking about financials here.

If you’re interested in buying a rental property, you should consider a few things first. Here are 10 tips to get you started: 

1. Make sure you’re good with financial matters. Lenders will review your personal finances when you go to purchase a rental property, but that is just the start. Once you own the property, you’ll have to consider the amount of money it may take to maintain it. You’ll also need to determine how much you’ll be able to charge for rent and if that amount will cover your mortgage costs. If you’re not able to do those calculations alone, enlist some help to crunch the numbers before you decide to buy. 


2. Expect a hefty down payment. When you apply for a second mortgage, you’ll find that the stakes are a bit higher. Typically, a 3% down payment is simply not going to cut it. Make sure you’ve got enough money saved up to show lenders your commitment to taking on another mortgage.


3. And a higher interest rate. In addition to putting more money down on a second home, you’re also likely to face a higher interest rate. That is, unless you plan to pay for your newly-acquired rental property with cash!


4. Be ready to put in extra time. Once you seal the deal and make a rental purchase, be ready to take on the role of landlord. Not only will you responsible for collecting that monthly rent check from your tenants, but you’ll also be responsible for taking care of any maintenance issues that come up during a tenant’s lease. If you don’t have the time to handle those tasks on your own, you’ll need to budget for a property manager or service professional that you can keep on call.


5.Don’t start with a fixer upper. If you’re not able to handle regular maintenance tasks, you won’t want to consider buying a rental property that will require more work from the start. When you’re looking at rental properties, it can be easy to go for the cheapest option. However, you should look for a property that is structurally sound, so you won’t have to put more effort and money in up front to get it ready to rent.


6. Don’t expect your 2nd property to be your first income. When you’re looking to purchase a rental property, don’t plan for it to be your primary source of income. Not at first, at least. Instead, keep a full-time job and enjoy the benefits of some extra money on the side while you figure out how to make the most of your rental property.


7. Ask for help. When you go to buy a home (of any kind), your friends and family are bound to offer advice. Instead of shuddering away from what friends and family are trying to say as you purchase a rental property and become a landlord, rely on their advice to help you find the best area contractors, property managers or even inspectors.


8. Carefully screen your tenants. You can’t choose your own neighbors, but when it comes to owning a rental property, you absolutely can choose your tenants! Make sure you’re asking the right questions, so you can find a tenant that will take care of your property like it is their own! Set high standards from the get-go!


9. Consider the neighborhood. As with any home purchase, location is key when it comes to a rental property. Not only will the location affect the type of tenants you draw in, it also will affect how much you can charge for rent. If you’re buying a home in an area that you’re not too familiar with, check around to make sure it is safe. Making sure the area has access to local amenities and transportation options also may help you attract renters.


10. Don’t be discouraged! Taking on a second mortgage for a rental property and becoming a landlord may require a lot of responsibility, but it can come with great reward! If you’re ready to invest in a rental property, start by working with a trusted real estate professional who can help you find the right home.


Start your rental property search today!