The primary reasons for purchasing rental property include making money and using it to build wealth in the long term. Just as it is with any other type of market, prices for housing and demand for rental properties can go up and down, depending on the cycles of the real estate market. However, there’s more to owning rental property than just collecting rent. Let’s take a look at some of the other things involved.
You Need Tenants — Good Ones
Great tenants are worth their weight in gold. However, there are tenants who won’t or can’t pay their rent when it’s due, or they might break their lease by doing something illegal or damaging the property. While making tenants pay a security deposit might help reduce your risk, many states have laws in place that limit the size of a security deposit you can require from tenants. This is why it’s vital to have systems in place for screening prospective tenants. Be sure to check an applicant’s credit, background and references carefully. While no system of checks is fool-proof, there’s no excuse for not doing your due diligence.
Access
You need to make sure that your tenants have safe and secure access to the property. Access means different things for different people. Most people can deal with steps leading to the door, but not all can. Some might need a ramp. You’ll need to decide if you are able to provide that.
People also need access to their mail and packages. They need a mailbox of their own for mail and you might want to provide them with smart lockers for their packages, so they’ll be safe. For multifamily properties, you’ll need to ensure that each apartment has its own mailbox.
Landlord Responsibilities
You might decide to self-manage your properties, a lot of investors do. Others may choose to find and hire a property manager who can take care of those day-to-day details such as complying with fair housing and landlord-tenant laws, coordinating various repairs with vendors, collecting rent, and communicating with tenants.
It doesn’t matter which way you go; the fact of the matter is that the buck stops with you. You’ll still need to make decisions like when to make costly repairs or how and when to evict those problem tenants.
Constant Maintenance
Rental properties require near-constant repairs and maintenance in order to make sure the building remains habitable and to maintain the value of the property. Some investors use something known as the 50% rule in order to have a cushion against the operating expenses of the property. Maintenance costs might vary from one month to the next. In fact, you may even have a negative cash flow for months where costs for repairs are unexpectedly high. Planning ahead for these eventualities is the key to surviving them.
Diversification
You might not be thinking about this when you purchase a multifamily property, but what you’re actually doing is diversifying your investments. One risk investors face is putting all their eggs in a single basket. It’s simple to buy stocks and bonds, especially online, and people can end up being overbalanced when it comes to the more traditional investments. A lot of investors then turn to rental property as a game plan for diversifying their investments.
Residential rental properties are available in all sizes and shapes. You might invest in a condo, a co-op, or even a single-family home. You might go for mobile homes, townhouses, or multifamily properties. That’s one of the best things about investing in real estate. There’s something for everyone who’s looking for an opportunity.
That said, just because having a rental property may sound as if it would be an attractive investment, it isn’t for everyone. Take a good look and do your research so that you know just what’s involved before diving in.
0 Comments