6 Things to Consider When Owning an Investment PropertyOur clients often ask us, “what are the Things to Consider When Considering Owning an Investment Property”? Within each of the 6 criteria below, there are a whole host of other concerns and challenges that should be addressed. Each property has its own unique set of circumstances too, as does each investor.
Here are 6 things to consider:
1. Buy a Property in an Area with Strong Rental History. A good Realtor can help you research different areas to determine rental history, going rates and available properties to consider. If you want to buy a single family home, consider the schools in the neighborhood. Often that is a determining factor for tenants. Or research other draws to certain neighborhoods, like proximity to major employment or transportation. If you are considering a condo or a town home you should research the Home Owners Association (HOA) to make sure it is fiscally sound and learn what type of maintenance they cover. You should also find out if there are any restrictions to making the property a rental. Some lenders will not make a loan in a complex with a high rental occupancy rate. A good Realtor can also help you find out all of this information.
2. Weigh the Pros and Cons of What it Takes to be a Landlord. Owning rental property long term can be a great investment, but it can also be expensive. Are you prepared to take on the stress and financial obligations involved with tenants and repairs? Over the years, given market appreciation and pay down of your loan, you could build a nice nest egg for retirement, if you do it right. Just fully understand all the pros and cons before diving in. The right property can make all the difference, so do your homework and hire a professional.
3. Know your numbers. Make sure your monthly rental income covers not only your recurring expenses, but also any unexpected expenses and lost income through vacancy. Before you even buy the property, you need to truly understand what you are getting into today. Never buy a property based on “what if’s” and other uncertainties. Wishful thinking is not a good investment strategy.
4. Understand Tenant Landlord Laws in Your State. Each State differs, so if you have owned property in another state and are venturing into new territory, check up on any differences, so you don’t get yourself in trouble. Two good resources for rental rules are the U.S. Department of Housing and Urban Development’s Web site (www.hud.gov ), and The Landlord Protection Agency (www.thelpa.com ), which includes state-specific rental guidelines and standardized forms for rental agreements.
5. Take Time to Properly Screen Tenants. Getting a good tenant is critical to protecting your investment. Always ask for previous landlord references, run a credit and a criminal records check. If you decide to allow pets, obtain an extra pet deposit, if allowed by your state regulations. Once you find a tenant, be sure to conduct a pre-move in walk through with the tenant to thoroughly document the current condition of the property. This will help avoid any disputes at move out.
6. Consider Using a Professional Management Firm. An experienced professional property management firm can help you take care of all of the above and more. If you already own a property and feel that you cannot budget the fees, consider what it costs you in time, aggravation and repairs each year. A commitment with a property management company will help protect your investment and increase your bottom line year over year by ensuring the property is rented to the right tenants, maintained effectively and ensure reduced vacancy time. If you are buying a property, right off the bat you should factor in the cost of property management into your ROI. If the property numbers don’t work, then find another property. There’s always a good investment out there, you just have to be patient and persistent and work with a professional!
The Southern Group, a division of Lisa Southern Real Estate, is experienced in managing rental properties in the Raleigh metro area. We currently have over 100 properties in our portfolio. We have a full staff of professionals to help you every step of the way. From researching properties, crunching the numbers, getting financing, the contract to close process, finding a tenant and collecting rents, we've got it covered.
Contact Us today for a free Investor Consultation and get solid real estate advice to see if owing an investment property is right for you.