Time, Money and Expertise is Needed to Successfully Own Rental Property
According to Darrah Hansen of Home Ownership Strategies, if done right, property investors stand to reap big rewards over the long haul, but property investment can also come at a heavy price to those who aren’t prepared to learn the market and do the less-than glamorous work of a landlord.
For those who are considering investing in a rental property, here are a few basic rules to keep in mind in order to mitigate the risk of the deal turning sour.
- Look for a community, or region that shows clear signs of growth and economic sustainability. Avoid towns whose existence are tied to a single company, no matter how tempting the sale price.
- Ask yourself: Are there jobs? Are there people moving in for those jobs? If so, they’ll need a place to live and often that means they’ll need a place to rent.
- It is important for investors to have a clear idea of the true monthly costs, including mortgage, interest and property tax, as well as potential extras, such as garbage pick-up, water usage or city fees.
- Those considering property investment should set aside an emergency fund to cover repairs and maintenance, or unexpected vacancies.
- Many investors choose to save money by doing the management work themselves, but that comes with its own costs. Landlords should expect to put a lot of time and effort into finding good tenants and managing the late night phone calls when something goes wrong.
- Treat property investment as you would any business. That includes hiring a tax professional to help report an income property, its expenses, revenues and asset appreciation. Not reporting an income property can land an investor in hot water.
- Securing a mortgage for an income property can also be complicated. Mortgage rules require investors to have a down payment and to have proof through tax returns of their income and assets. Homeowners who are interested in an income-generating property, but don’t have a down payment, may want to consider a basement apartment within their own home.
Owning rental properties can be an excellent source of income, if the owner is prepared to invest the time and money it takes to achieve success and reach their financial goals.