What You Should Know Before Buying a Rental Property by Ken McElroy

What You Should Know Before Buying a Rental Property

Avoid the Mistakes and Mishaps

Rental properties have become more appealing since the huge housing market crash not too long ago. With people being more interested in renting than buying, investors are seeing more opportunities to make a return. However, there are several factors and things to be considered when owning a rental property. It’s hard work, but when you finally get your property and the right tenants, being a landlord of your own rental property can be rewarding. Here are some things to consider when thinking about owning a rental property.

Location, Location, Location

Choosing the perfect investment property is heavily dependent on the location. But how do you start? I always like to ask people: are you looking for multiple tenants in your property (like a family) or are you looking for a single person? If you want a family, you know to look at locations near schools that have good reputations. If you are looking for single tenants, you might start looking by the trendy bars downtown!

Start thinking about the demographic you want to cater to and that will give you a decent starting point when thinking about location.

Layout of the Property

Again, depending on who you’re going to cater to and depending on your budget, you need to start thinking about the square footage of the property you’re looking for and the number of bedrooms. A family isn’t going to take the time out of their day to look at a 1-bedroom home with a small den. Just like a single person isn’t going to want a 5-bedroom home (too much space).

Take into consideration the demographic you’re looking at and find something that works within your budget. Maybe you land somewhere in the middle, a home with 3 bedrooms (1 of which could be an office, the other a spare) and could cater to a single person who works from a home office and has visitors or a family with 2-3 kids.

Your Budget

Just as tenants have a budget, you must have a budget. Just because a bank is willing to lend you a huge amount for a loan, doesn’t mean you should max it out. Think about all the worst-case scenarios that could happen with your property. Maybe it stays empty for a year. Would you be able to cover the mortgage by yourself? If not, will you have to agree on a short sale that’s well under what you paid for the property? The whole point of owning a rental property is to give you financial freedom, not ruin you and your credit score. That’s why I urge you to be smart and don’t get ahead of yourself. Secure a budget.

Can you be the next Chip and Joanna Gaines?

Unless you live under a rock, you should know who Chip and Joanna Gaines are. They are known for their show Fixer Upper, where they help homeowners get their dream home by flipping existing houses.

I bring this up because more likely than not, you’re going to have to put some work into your investment property before it’s ready for tenants. This means calculating the budget, the overall cost, as well as the timeline. Why? Because during the time frame that you’re fixing up the property, you’ll be spending money and time with no tenants to pay you money.

If the fixes include something as simple as a paint job or carpet cleaning, I’ve seen landlords offer their tenants free rent for the first month if they take care of those fixes themselves. But for more serious fixes, you’ll need to decide if you can do them yourself or hire someone; and if you do decide to hire a contractor, clearly define the terms for both the budget and timeline. The last thing you want is a delay or huge unexpected cost.

Good luck and happy hunting!

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