It is crucial to investigate, plan and look at all the pros and cons of investing any amount of cash. It could be anything from finding an investment app to consider as a new investor or purchasing a property to rent. However, today we will be focusing on some points that one should consider before making any real estate investments. So keep on reading if you are planning to purchase a rental property, as such investments can take up your whole life savings, and you want to make sure that you make the best decision.
Get the home inspected by a qualified professional
Hiring a home inspector to identify the property’s overall condition should be a mandatory step for everyone interested in buying a house. A home inspector will help you examine a property’s overall condition including the HVAC System (heating, ventilation, and air-condition), roofs, plumbing work, sewage, and electrical work, etc. This will help determine the real value of the house and also help you negotiate. After getting your home inspected, you can decide if the property is worth buying or not.
If you do decide to purchase the house, the home inspector will inform you of any hazards or serious issues present in the house that need to be fixed. By doing so, you will be able to ensure the safety of the tenants as if someone falls sick or gets hurt then that may cause grave consequences for you. In addition, getting the property inspected will also give you an idea of how much money you will have to invest in fixing the house and how much time it may take to do so
Check out the neighbourhood
The neighbourhood in which you decide to buy a rental property plays a huge role in determining the types of tenants you will captivate. If you decide to invest in a bad neighbourhood that has a higher crime rate, then you will have to charge low rent because not many people will be willing to live there. Thus, to attract tenants and charge premium rent, choose to invest in a location that has a growing population and offers plenty of parks, schools, hospitals, film theatres.
Pay off personal debt
Before making a large investment such as buying a house, you should work on paying off any debts, as you do not want to risk putting yourself in a situation where you are unable to pay debts. You have to consider the fact that when you purchase a real estate property, it will take time to fix it and find suitable tenants. It will take a significant amount of time before you start getting a return on that investment. This is why planning is crucial before making any investments, as you want to have a margin of safety.
Be aware of your legal obligations
To avoid any legal issues or penalties, all landlords must be aware of the landlord-tenant laws applicable in their state. It is crucial to understand your and the tenant’s rights, including your obligations when it comes to eviction rules and security deposits etc. This will help you avoid any issues in the future and prepare you in the instance if you do face any legal issues in the future.
Prepare yourself for a hefty down payment
In most cases, investment properties require a larger down payment if compared to owner-occupied properties. Sometimes if mortgage insurance isn’t an option on a property, you might even have to pay around 20% of the down payment. Thus, be always prepared for such instances to ensure that you don’t end up losing a worthy rental property due to a lack of funding. You can prepare yourself for down payments by saving up a good amount of cash or opting for a personal loan.
Be prepared to pay high-interest rates
As mentioned above, you may have to opt for bank financing to pay for down payments or repair costs. However, one has to keep in mind that interest rates on investment properties can surpass usual mortgage interest rates. Thus, you will have to research and choose a bank that charges the lowest interest rates so that the mortgage payment does not eat up a large chunk of your profits.
Start small, if you are new to the rental property ownership world
Experts recommend people who are new to real estate investment start slowly and do not invest a substantial amount in their first home. New real estate owners may not realize how big of a responsibility it is to become a landlord, thus it is best to start small and gain experience first before making a large investment.
Don’t forget unexpected costs
One must consider various factors before making any investment, and one of those factors is to be prepared for any emergency expenses. Emergency expenses may include burst pipes or seepage that may occur due to natural calamities. So, it is always smart to make separate savings account for emergencies so that you are prepared to tackle any situation.
Consider investing in Landlord Insurance
Applying for landlord insurance should be a priority, especially if your home is located in an area more prone to face natural calamities such as hurricanes and strong winds. Landlord Insurance will help you ensure the safety of your finances, as it may cover any unanticipated bills. You may also receive temporary rental reimbursement if your home is inhabitable due to severe property damage. In addition, this insurance may also provide liability protection if a tenant gets hurt on your property due to architectural collapse or icy walkways, etc.
Calculate the risks and rewards
Lastly, before making any financial decision, you must calculate the risks and rewards that come with it to ensure that the rewards outweigh the risks. This will help you make sure that you are not getting yourself into a risky situation where you might end up facing a loss rather than making a profit.
Have you bought a house to rent before? If yes, what other tips could you add to this list?
*Disclosure: Collaborative Post
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I have a house I rent out, although it was my own home at one point. These are great tips! #KCACOLS
We have just done this. I would add make sure you understand the Landlord insurance – we got it then discovered it didn’t cover the house value properly nor did it have the ‘extras’ of covering loss of rent (if your tenant has to move out while the property is being fixed – say after fire or flood). Se we had to pay more than initially quoted to get those things. #KCACOLS
As someone who has been a tenant for many years, I would add that having a good relationship between landlord and tenant, to your list, if possible#kcacols@_karendennis
This is something on our bucket list for the future, once we’ve paid off our current mortgage we plan to buy a rental- we’re a long way off that though!
Katrina x
#KCACOLS
Really good points to think about before setting up in a rental accommodation x #kcacols
Some great pieces of advice here – thank you! We rent out our house in Australia, but that is more so because we are currently expats. It would definitely be a big decision to buy something purely to rent. #KCACOLS