The real estate business is enjoying a major resurgence right now, and with high lender confidence and recent hints that interest rates may be increased by the Fed, many more people are looking to get into the real estate investment game while rates are still down. As the market continues to recover, getting a building at a reasonable price and becoming a landlord seems a good way to turn a profit. However, you need to be aware of what it means to be a landlord before diving in. Here are some tips to know whether you are ready to own a rental property.
Owning a Rental Property
Owning a rental property can be a great way to make money and can even turn into a career of its own as you add more properties onto your original and learn to manage them. However, it’s not just about sitting back and collecting money. There are a lot of responsibilities and investments that have to be made to make it work. Understanding what’s involved can not only increase your profits, but can save you from getting in over your head.
Do You Have the Cash?
The first thing you need to do is be sure you can finance the purchase of a property. Make sure you get all of your finances in order and are well aware of the state of your credit. Getting a second mortgage to finance a down payment isn’t a valid option these days with banks being more cautious than they once were. You’ll need a 20% down payment at minimum, and more if you want a good rate. You’ll also need enough in the bank to cover a full half-year’s expenses on personal and rental needs.
Can You Profit?
Your monthly rent needs to be at least 1% of your mortgage principal to turn a profit and maintain positive cash flow. This means that if you purchase a $200,000 building, your monthly rent needs to be at least $2,000. You also need to consider that every year, about 10% of your units are going to be vacant. Vacant properties cost you money to maintain while not generating income. Can you handle that loss and still turn a profit?
Make sure you have a solid professional network in place. This means property managers, superintendents, carpenters, electricians, plumbers, roofers, HVAC professionals and the like. Whenever you need to make repairs, you need to have someone reliable upon who you can call to get the job done fast. Be sure you’ve got a good lawyer on retainer as well—this can save you when the chips are down.
The Stress of Ownership
Owning a rental property is a stressful job. Make sure that you’ve got the stomach to handle it. From deadbeat tenants to students who destroy the property and skip out, you’ll have to deal with all kinds of stressors.
Even still, rental properties can be a great way to make a living if you’ve got all of your ducks in a row. If you’re thinking about buying in the Nevada region, read a bit more about development opportunities, and give us a call for more information today!
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