So now you’re a landlord. Congratulations. Investing in rental properties can be a smart way to grow your income, especially in today’s rental market. Just remember, being a landlord is not for everybody. It’s also not a way to get rich quick. Being a real estate investor is a long-term commitment, and like marriage, not to be entered into lightly. But if you're still itching to tap your inner real estate baron, here are 7 keys to help you successfully unlock your new investment property.
KEY# 1: Recognize that being a landlord is a business. Even though a rental is someone’s home, it’s not your home. It’s a business and you must treat it accordingly. You need a business plan. Although it’s classified as “passive revenue” there’s nothing passive about it. It requires your time, involvement and a certain skill set. You must understand the financial commitment, your tenants and their needs, and the market in your rental area. Do your homework.
KEY# 2: Start small. Most experts recommend starting with a single house or smaller multiple-dwelling unit, perhaps with a partner, to see if the business really suits you. They are easier to buy and will allow to get your feet wet with maintenance, bookkeeping, and other work required. Also look for something without high-maintenance features like fancy landscaping.
KEY# 3: Don't invest somewhere you don't know. As I said earlier, know your market. If the price is too good to be true, it probably is. You may jump on a great house only to find that it’s in a less desirable school district, it floods every time it rains, or two blocks over is a gang-infested neighborhood. And by all means do not allow someone to talk you into buying property in a different state. You are just setting yourself up to fail. Buy only in neighborhoods you know well or have researched thoroughly.
KEY# 4: Figure out the right rent. Rents differ widely around the United States. Craigslist and local real estate agents can give you an idea of what they are where you're buying. Then you need to determine if that rent will be enough to cover your costs. Too often, people take a look at their loan and think if they cover that, they're doing fine. But you'll need to include property taxes, insurance, maintenance, repairs, and the downtime that comes with vacancies. Hopefully, when all is said and done, you can even add in a little profit. There are formulas to figure your rate of return, such as the "capitalization rate," to help with this, but you might want to turn to a professional. A good accountant can make sure the purchase makes sense.
KEY# 5: Be ready to get your hands dirty. If starting with a single home, you can try to manage the property yourself, but this does require that certain skill set. If you’re handy with tools, you can save yourself a lot of money, but if you're the kind of person who has put off fixing your own leaky faucet for a month, this probably isn't the business for you. You also need to be able collect rent even when it makes you uncomfortable or seemingly heartless.
KEY #6: Keep your tenants happy. The fastest way to lose money on a rental is to have it vacant. The heart of successful long-term property investing is finding and keeping good tenants. There are companies who will run background checks on prospective tenants to help you find renters you can trust and will want to keep. Then it’s your job to keep them happy by keeping the property in good shape and treating them with respect.
KEY # 7: Get professional help when you need it. If you decide to manage your property, you'll going to need people: a real estate lawyer and an accountant, as well as some good plumbers, electricians and other tradespeople. Overwhelmed yet? Turning to a good property management company is a surprisingly affordable approach to land lording. This is true especially for people who still have “real” jobs.
Here at Martin Presence, not only do we know people, we are your people. We have the financial knowledge and experience you need. The stumbling blocks you’re likely to encounter, we’ve already ironed out. We know the neighborhoods; we know the market. We have the tools for screening tenants and we are able to collect the rent. We even know how to get our hands dirty when the plumbing fails. We will help you make your first rental a success and we will guide you as you are able to expand your investments. It’s a win-win proposition! Call us today!