Buying an investment property as an investment vehicle is an old practice. But as times change so does the complexity and responsibility of things. Real estate investment has produced many wealthy people, so it is easy to think that it is “the way” to go for investing. It has its share of challenges and can be more of a headache than it is worth. As the landlord you will be responsible for the property maintenance costs and taxes. It may take some work to secure financing and you will need a different type of insurance for the rental property. And you will be responsible for screening tenants.
Rental Property Considerations:
How Handy Are You?
Are you prepared to spend your free time fixing toilets, appliances, drywall, etc. . . These take time and money. Sure you could hire someone to fix these problems, but that will eat up your profits. Buying an investment property at a bargain to fix up requires you have the money, skills and time to make the needed repairs. Personally I love working on properties . . . well, most of the time. The dirty smelly jobs are never fun, they never get better.
If this is your first rental property you may want to consider buying an investment property that only needs minor repairs and is below the current market price. Getting any property into rental condition requires at minimum fresh paint and likely carpet. Maintenance of large items like appliances, windows or roof and you will find money going out faster than it will be coming in.
Can You Finance and Make the Payments?
Borrowing for a primary residence is a bit easier with a large selection of options. Financing for an investment property can be more challenging. In point, mortgage insurance on a rental property is not available from insurers. This means you will need at least 20% down for bank financing, and the bank will likely insist on a good credit score as well as six months’ worth of expenses on the property. It is also a really good idea to buy Landlord insurance. Your home owners insurance is not likely to cover rental property.
Another factor to keep up to speed with is interest rates. When the rates fall, buying rather than renting can be more attractive to would be renters lowering the demand for your rental. And lowering your rental fee can be tough if you are just making the payments. Calculate your operating expenses and determine your return. The operating expenses will be between 35 and 80 percent of your operating income (rent charged). In your first year as a landlord a 6 percent return on every dollar you invest is considered healthy.
Are Renters Easy to Find?
Well . . . Yes and no! (I’m glad I could answer that for you). Today we have the internet. It makes finding potential renters inexpensive and provides a fast way to do it. Still, putting an ad in a good publication can increase the likelihood of finding families and older adults. Never the less a proper background check and tenant screening may cost a bit of time and money, but I’m sure you understand the reasons behind this concept. Responsible tenants give you much less hassle. This is not to say good tenants have no hassles. Even great renters and great properties can have many things to deal with. Pipes break, drains get clogged, garage doors fail. Things happen!
On the flip side, those things may be a dream for you if you end up with a bad tenant. Regular calls and rental payment difficulties and damage to the property often end up in disputes and money spent on repairs.
So, are you still thinking of buying an investment property? You will need to assess the opportunity for yourself. It will take some time, energy and learning. You will end up learning about basic repairs, alternative ways of financing and fine tune your intuition and people skills. That’s not a bad tradeoff if you follow some basic principles and minimize your risk; you will be more knowledgeable than when you started out. Deciding to take on the responsibility of an investment property can be a big change. If we are prepared, we can always manage change.
There are pros and cons to everything. It all depends how we respond to circumstances and opportunity. The decisions we make determine what we get. Twenty years ago I would likely have rolled my eyes and let out a painful groan if someone had said that to me. But those are facts. Deep down any hard working person knows it’s true. If you are satisfied with the results you’re getting then you can sit back, relax and hope to catch the next break, if it stops for you! Or, you can decide to make an opportunity for yourself. Generally that means learning something new and a different way of doing things to improve your results. For example; learning how to be a landlord is much easier and safer than “winging it” and hoping it all works out without putting the effort in. The new way of doing things is what I have chosen to do for my own business to scale things up. You could benefit from this also.
I have joined a massive education platform that is so easy to use and learn, it makes so much sense to act on it. It is a strong community of successful leaders and members with a spirit of giving and assisting one another. I knew next to nothing about internet marketing when I began learning new skills to build my business. The ease of use of The Six Figure Mentors platform has given me the ability to start using the skills I’m learning right away! This is a proven system that can help you build value into your business or anything you decide to do. While I am increasing my knowledge and applying it to my business, I am also building an asset for the future. And I have just barely scratched the surface of the potential benefit that is there for all of us.
If you are at all curious about what I’ve mentioned here, or want more from your time, effort and persistence; check them out. Try the free training video series. It will show you what it is about. Or check out my author profile page to meet my mentors providing me with these resources. I believe they are good people with good intentions.