Just like buying your first home can be a complicated and intimidating process, so can buying your first investment property.
Investment properties generally require a larger down payment than a primary residence, so you will certainly have more at stake.
You want to make sure that everything goes smoothly and that you have all of your bases covered. Even the slightest misunderstanding could turn what looked like an outstanding deal into a bad one.
Here are some of the major factors about buying a rental property that you are going to want to consider before you close the deal:
Type of Property
The type of property you purchase can have a huge impact on both your monthly cash flow and the amount of work that will be required to maintain the property.
Single-family homes will be the most straightforward properties to maintain, but they will also only provide one set of tenants. This can be good or bad, depending on the quality of the tenants.
Duplexes, on the other hand, offer double the tenants without a great deal more work. This should result in higher income for a comparable amount of work.
If you are looking to dive in head first, buying an apartment building can offer you a fantastic way to jump-start your real estate investing career. But there will also be quite a bit of regular maintenance required, so make sure you are factoring that into your budget.
Regardless of the type of property you are purchasing, you are going to have to break down what your monthly budget is going to look like to manage the property.
Some months might be as simple as collecting the rent and paying the mortgage. Those months will be great, but could be few and far between.
Other months might involve leaky faucets and broken hot water heaters. You will also have to plan ahead for major issues like furnace or roof replacements. And don’t forget about the routine maintenance items like landscaping which can take a bite out of your monthly cash flow.
Becoming a Landlord
Another aspect of owning an investment property that you will want to prepare yourself for is becoming a landlord. That means collecting rent every month from good tenants, but it also means you might have to deal with tenants who are more difficult to collect from.
As the landlord, you can expect to receive phone calls at all hours of the day and night when something is not functioning properly. During these times, having a bit of maintenance knowledge, and a lot of patience, can be a huge help.
Speaking of maintenance, who is going to handle that?
If you have the time and ability, handling maintenance issues yourself can be a huge money saver. If you are short on time or aren’t very handy, having a good relationship with a general handyman and plenty of specialists is an absolute must!
When you are starting out, always remember that you get what you pay for and it is often worth the extra cost to deal with a maintenance person who shows up on time and fixes the problem correctly on the first try.
Hopefully you won’t have to deal with any tenants moving out in the middle of the night and sticking you for their last rent payment. But there is no denying that you are going to have to deal with periods where your property sits vacant between tenants.
During these times, you need to make sure that you have enough capital to continue to stay afloat. Plan for the absolute worst-case scenario because it is always better to be safe than sorry.
Investing in rental properties is a big step up from investing in your own primary residence, but that doesn’t mean it’s not worth the effort. Countless investors have built entire careers successfully managing rental properties, and there’s no reason you can’t do the same, as long as you do your homework.
Your local Carrington Real Estate Services agent can help guide you in choosing your first rental property. Contact your favorite Carrington Real Estate Agent today!