Rental property can be a great source of income and a great investment when done correctly. Unfortunately, eager buyers often jump headfirst into purchasing rental property without doing the due diligence to ensure that it will be a great fit for them. Before YOU buy rental property, consider these four things so you know that you won’t regret your purchase down the road:
1) Be prepared to be a landlord or be able to pay someone to manage the property for you. While this seems like an obvious one, many new rental property owners aren’t prepared for the amount of time and effort it takes to deal with tenants on regular basis. For those who decide to hire a property management company instead, the cost of this can catch them by surprise as they may not have factored it in to their initial budget plans.
2) Do the math to ensure the purchase is a good investment. When purchasing a rental property, you have to think through all the details to ensure that it will be a wise investment. As we mentioned before, unforeseen expenses like a property management company can completely derail your profit and can quickly make your rental property a money-losing headache. In addition to the big expenses like the mortgage and taxes, you’ll also need to account for expenses like maintenance, HOA fees and deep cleanings and repairs in between tenants, just to name a few.
3) Make sure you can handle the worst-case scenarios. For a rental property, worst-case scenarios might be not being able to rent the property for months at a time or renters who trash the place, leaving it in need of extensive repairs and cleanings. If a situation like this would put you in a financial hard spot, you may need to wait before purchasing rental property.
4) Decide on your target area and target audience. Blindly purchasing rental property somewhere just because you think it’s a “good deal” is never a good idea. For example, a small, simple 2-bedroom house near a university might make the perfect spot for college students to rent year after year. But take that same property and place it within a family-focused neighborhood and you may have trouble finding a taker.
The bottom line is that purchasing a rental property requires a lot of research and thought before taking the plunge. Talk to experts and those who have done it before to ensure that you’re making a decision that will pay off for years to come.