If you’re looking to diversify your investment portfolio or bring in extra income, you’ve probably heard about owning an investment property. The idea is to buy a home that you can rent out, which brings in solid, reliable income each month.
This can be a great avenue if you’re ready for it, but it can quickly become a nightmare if you’re not. There are several things to consider before you buy and manage a rental property. Let’s take a look at those important considerations now.
Are You Financially Ready?
Buying an investment property is a big decision. You might think that renters will help cover the cost of the mortgage, but that isn’t 100% guaranteed. What if you have a period of vacancy? It’s essential to have cash available to cover your expenses.
Location matters a great deal when you buy a rental property. That means you might have to pay a premium to get the right house. Take steps to ensure that you don’t hurt yourself financially in other areas to secure the right property.
Are You Ready to Be a Landlord?
Once you have renters, you’re a landlord! That means the income from the property comes to you, but then so do the bills. For instance, you have to be ready to make or hire repairs ranging from a clogged toilet to a new roof.
As a landlord, you’ll do best if you’re openly communicative with your tenants. They should be comfortable contacting you if there are any concerns, knowing that you will be professional and address the problem.
There are tips to make being a landlord easier, but it is still a lot of work. You’ll want to handle fixes quickly to keep renters happy and prevent small problems from becoming major issues.
Beyond maintenance, you’ll have to be prepared for poor tenants. Sometimes, despite your best efforts at vetting applicants, you’ll end up with a bad apple. They might trash the place or fail to pay rent. Evicting tenants takes time and money, so make sure you understand the process in case you need it.
You’ll Need to Invest in Your Investment
Some people have the mistaken idea that you can buy a property, fix it up, and from there it’s all positive cash flow. That is far from the truth.
The reality is you’ll need to invest in your investment. A rental can last a long time and be very profitable, but only if you take care of it. Remember, upkeep, such as maintaining your HVAC with regular tune-ups and filter replacements, is much less expensive than outright replacement.
While you’ll do everything you can to extend the life of appliances, roofs, and ductwork, you’ll need to set money aside for major repairs and replacement. If you don’t have enough room in your cash flow for this, you might not want to move forward with the investment property.
Real Estate Can Be a Great Wealth Builder
Owning real estate can be a great way to build wealth. Not only do you get a cash flow over time, but the property may appreciate in value as well. Rents tend to go up every year, so you can keep pace with inflation as well.
Maximizing the profitability of your property takes wisdom and patience. You have to carefully review tenant applications to avoid problems and keep maintenance top-notch.
If you do this well, it can be a great opportunity. Just be ready for the ups and downs that come with it!
Luke Smith is a writer and researcher turned blogger. Since finishing college he is trying his hand at being a freelance writer. He enjoys writing on a variety of topics but real estate topics are his favorite. When he isn't writing you can find him traveling, hiking, or gaming.