Rental properties are becoming an increasingly popular investment strategy
Owning and leasing property can be a lucrative investment strategy for many, but being a landlord is no small feat. From coordinating property showings to approving tenants and managing maintenance requests, a lot of work goes into running a profitable rental.
If you’re in the market to buy rental property, there are some things you should know ahead of time. In this article, we’ll be sharing some useful tips to help you jumpstart your rental property mission.
1. Understand what it means to be a landlord
Before you even begin your investment property search, you should consider your comfortability with being a landlord, as there are several pros and cons associated with such a decision. Running a rental property is like running your own business—there’s money and coordination involved, advertising, taxes, and sometimes, there are legal confrontations. Put simply, being a landlord isn’t a set-it-and-forget-it kind of deal, that’s why it’s important to consider the opportunities and obstacles you may be presented with.
Here are a few key questions to ask yourself before diving in:
- “Do I have the time to address tenant requests and concerns?”
- A lot of property management is handling communication with your tenants. Maintenance repairs, neighborhood debates, and noise complaints are just some of the concerns that could come your way. Some property owners choose to hire a management company to help field questions and make repairs, but it’s important to know that outsourcing can cut into your profits.
- “Can I/will I be making repairs, or will I hire someone to?”
- In the same vein as property management, hiring a handyman to address all repairs can really add up. Many landlords choose to make some or all of their own maintenance in order to preserve profits. Make sure you plan for costs such as background checks on maintenance people, landscapers, etc. to ensure your property is well taken care of by credible workers.
- “Am I familiar with basic tenant-landlord laws in my state?”
- While you certainly don’t need to be an attorney to own and rent property, it’s a good idea to know the basics so that you can protect yourself and your renters.
2. Evaluate whether you’re financially ready to take on a real estate investment
Investing in real estate is a major financial milestone. Not only does it signify new responsibilities and new experiences, but it also demonstrates financial preparedness. To buy a house, unit, or complex, you’ll need to jump through a few hoops; like, applying for a mortgage, putting in an offer, and finally closing on the property.
But before all of this, you’ll want to set yourself up for success so that you can secure the best odds possible as you shop for property. Failing to meet this step could impact your mortgage rate, put you in a bad position with debt, or lessen your property’s potential for profit.
Here are some easy steps you can take to make sure you’re ready to venture into real estate:
- Look at your debt and savings: Before you take on a mortgage, it’s important to review your current debts first. If you have a high credit card bill or other existing loans, take a moment to account for an extra loan payment in your budget—can you reasonably afford one?
- Consider your financial goals: If the housing market is in favor of buyers and you’re ready to put the work in for a long-term investment, investing in a rental property may be the ideal route for you. If you’re hoping to pay less money on rent and plan to live in an area for the foreseeable future, buying a home for yourself may be the better option. Everyone’s financial and lifestyle goals are different, so take some time to consider how real estate investment fits into your visualization!
- Check your credit score: Your credit score has a substantial impact on the mortgage loan you could be approved for. Typically, the more pristine your score is the better interest rate and loan terms you’re eligible for.
3. Great tenants aren’t always easy to find
List your property on a few sites, name your price, and draft a lease with your new tenant—renting your place can’t be that hard, right? While there are plenty of stellar tenants out there, they’re not always easy to find. From noisy neighbors to late rent payers, there are lots that could go wrong if you’re not careful in your selection process.
With that said, here are some things you can do to improve your odds of finding (and retaining) great renters:
- Perfect your listing: Your rental listing is the first impression potential renters have of you and your available property, so it’s important to make sure it looks polished and professional. What’s more, a great listing can appeal to more applicants than one that doesn’t look so desirable. To draft a solid listing, include high-quality photos, an accurate and thorough description of the property, and details on the application/approval process.
- Dial in your application process: Establishing a clear application process makes your life and your prospective tenants lives a whole lot easier. Stick to a format and check to see what a typical process looks like in your area so that you’re consistent with your competition.
- Be flexible: Sometimes finding and keeping great tenants means that you have to be flexible. Whether they need to do a virtual property tour or just need to pay rent a day or two late, it’s almost always worth it to be patient once you find your ideal renters.
- Ask for references: Just like employers ask for references, so should landlords. This insight on an applicant’s rental or work history can help you avoid trouble later on down the road.
- Follow applicable laws: As we mentioned before, it’s important to make sure that you’re abiding by your region’s tenant-landlord laws. Before rolling out your application and approval process, double-check to ensure that you’re operating accordingly.
Owning and renting out property can be a fantastic investment for those willing to put the work in! Use these tips to assess whether or not you’re ready to become a landlord.
Your financial future starts today
Savology has helped tens of thousands of households across the United States improve their financial well-being by providing comprehensive digital financial planning. Users can get started with our free financial planning or premium monthly planning memberships, allowing them to build a personalized financial plan, holistic report card, personalized action items, and more. In addition to our consumer-facing platform, we’re helping employers across the country provide their employees with effective financial wellness benefits.