Are you looking to learn the basic ins and outs of purchasing and managing a rental property? You’ve come to the right place! Class is now in session for Rental Property Management 101. Before you sign your name at the bottom of any legally binding documents, make sure that you’re ready for the challenges that managing rental property can bring.
As real estate investor Leonard Baron told Time, “Things may go well with your properties and you might not have too many issues, but that’s the exception, not the norm.” He recommends having a stockpile of savings to address unexpected costs, and to avoid the endeavor if you’re already consumed by a full-time job and family responsibilities. Plus, being handy doesn’t hurt.
This kind of investing is certainly not for everyone. When it goes right, it’s a flexible and rewarding way to earn monthly income and diversify your portfolio. When it goes wrong, it can be a huge headache and even a legal nightmare. Keep reading to learn more about investing in your first rental property and sustaining it for the long term.
Do Your Due Diligence
When you’re in the market for your first property, you’ll have a lot of numbers flying at you. It’s up to you to get to the bottom of whether the residence is a good investment or not. You’re looking for places that can provide you positive cash flow, even once you factor in all the expenses it will take to get it up and running.
Casey Fleming, a mortgage professional in the San Francisco Bay Area and owner of rental properties, recommends not moving forward on any properties unless you can see the current owner’s Schedule E from the last few years. This will help you gauge cash flow possibilities. He suggests choosing a building in a good neighborhood that’s slightly run-down, assuming you have the funds ready to fix it up.
Fix Up Finances First
Whatever you think you need, add a cushion. You’ll usually need to put at least 20 percent down, and may pay a higher interest rate on your mortgage. Make sure your credit history is doing you justice and take measures to improve it. Besides the outright cost of the mortgage, this is the time to estimate repairs and maintenance costs to make the house livable and desirable for tenants. Renovating is a matter of choosing quality materials where it counts. One property manager told U.S. News & World Report that granite countertops in the kitchen can bring in an additional $50 to $90 each month.
Finding and Keeping Good Tenants
Once you go through the process of buying a property and bringing it up to code, you’ll be eager to get tenants into the space. Make sure you take the time to vet potential tenants well with background checks, references, and a thorough understanding of their rental and financial history. Working with reputable rental property management companies to handle listing, screening tenants, and coordinating the move-in can provide relief for first-time and experienced landlords alike. Whichever method you use to handle your communications, make sure to keep excellent written records for later reference. The best approach is one of politeness, efficiency and honesty. If there is ever a discrepancy between your side of the story and your tenant’s, you’ll be glad to have detailed, time-stamped records of your messages that clear you of any negligence.
Now that you know the basics of owning and maintaining rental property, it’s time to get specific with your research. Start scoping out the market you’re interested in, and look up local, state, and federal laws so you can get a better idea of what you’ll have to do to make your dream come true. Good luck, and best wishes on your future investments!