Thinking about purchasing a rental property? It’s a great investment. But there is some leg work that needs to be done on the front end of the idea in order to make it work.
Buying any Lander real estate is a big deal, but buying a property that others are going to rent from you presents an entirely different set of challenges that you should be prepared for. Here are some things to consider.
You are not living in this property, so there’s a chance that there are months when it won’t be occupied. During those months, you aren’t generating income and you still have to cover the additional costs that come with property.
If you’re charging rent that only covers the very basic expenses, you aren’t putting anything away to protect yourself during unoccupied months. You’ll need to run the numbers on several scenarios and speak with a financial advisor to see if you can really make this happen.
Well this one seems straightforward, right?
You have a property that you’re renting, so you’ll have to have tenants. However, you can’t guarantee what type of tenants you’ll get. You could end up with someone who pays on time and is as nice as could be, but you also risk accepting people that might run your place down, not let you know when things need fixed, and cause your property to need further repair. Then, there is the dreaded tenant that doesn’t pay on time, and you end up fronting the cost of your mortgage until they come up with the funds.
There are absolutely no guarantees when it comes to tenants, so it’s worth spending time considering this factor. You need to get a good property manager or even a good lawyer to write a lease that protects you and your property from the unknowns of having someone else occupy a home you own.
Depending on your lender, if you are looking at investing in Lander real estate, you may end up owing a different percentage for your down payment. Unfortunately, this is usually more than average because banks view rentals differently than a primary residence. They may even require you to designate the property as your primary residence for some period of time.
Not only will you have a down payment, but closing costs are an additional fee to consider. This will range around 2-5% of the purchase price, so be prepared.
Here is where getting good tenants really matters. Making sure you have someone who isn’t destroying your home is a must, but is easier said than done. If tenants aren’t taking care of your home, or if something goes unrepaired for a significant period of time, the damage can be substantial.
Substantial damage means substantial cost. For example: if your tenants are trying to cut costs by not heating the home appropriately and you have frozen pipes burst, or a water leak that then creates mold, it can significantly bring down the value of your home. Make sure in your lease you are able to access the home (with notice to the tenants) and schedule repairs in a very timely manner.
However, don’t discount the many benefits of a rental property. Gaining another asset and using renters to help foot the bill is a great way to go! It’s just a decision that requires a great deal of thought and consideration. Talk to the experts. Talk to your financial advisor and your lender to see where you stand. Talk to friends and family who might be in a similar situation and who have had success with renters. Do your research on what home improvement would cost in your area, and see what the going rates of services are. It is a worthwhile investment when done right, so take your time, be thoughtful, and see if this prospect is right for you!