Having a rental property is a good investment. Many of those who have taken this route in real estate investing have amassed considerable wealth. Like any other type of investment, though, this type of business comes with risks and downsides.
Rental property investments are usually expensive, and buyers will have to prepare at least 20% of the total cash price to pay the down payment. At times, the business may not also boom as expected, and the landlord may struggle with keeping the rental income as high as possible to cover the mortgage of the property.
If you are among the many people who are enticed to the income-generating potential of the rental property business and are just starting out with this type of venture, here are some helpful management tips for first-time landlords like you.
Is this really what you want to do? Being a landlord is a challenging responsibility and it requires you to have a wide array of skills, including managing difficult tenants, fixing leaky faucets and blown-out pipes, unclogging a toilet, fixing doors, and changing bulbs at times. Some of these responsibilities can be assigned to a professional contractor, but landlords who are trying to save often do these tasks themselves to avoid expenses.
Likewise, if you are to become a landlord, you should have the ability to manage tenants, manage your finances, and the property as well. If you are not a people person, do not know a thing about the fundamentals of property maintenance, or have no financial management skills at all, then you are probably better off with another career or business.
Be Familiar with the Housing Laws
Real property investing, such as the property rental business, is governed by certain laws that aim to protect both the landlords and the tenants. As a landlord, it is your duty to be familiar with these laws and to uphold them at all times. Knowing the various laws and regulations that cover rental properties in your area can help you make the most out of your business and to stay above the competition.
Five laws in real estate that you should know as a landlord are the following: the Fair Housing Act, Fair Credit Reporting Act, Lead Disclosure Rule, Landlord-Tenant Laws, and the Eviction Rules. Apart from these five major real estate laws, there are also minor ones that you should be aware of. Knowing all these laws and regulations can help you avoid legal issues that commonly affect landlords.
Pay Off Your Personal Debt
Many investors carry debt as one of their portfolio investment strategies. This may work for some, but for those who have unpaid medical bills, student loans, and have children who are about to go to college, getting a loan for a rental property purchase may not be a wise decision. Securing a loan for a rental property purchase can only lead to more debts piling up and it could become harder for you to pay these loans off.
Remember that not all returns from the real estate investment are higher than the costs of debt. Sometimes, debt can become too high even for the returns of real estate investment to pay off. If debt and lack of funds are an issue, then going into the rental property business may not be the right kind of business for you. If you are really serious about investing in real property, make sure to pay off all your outstanding debts first before going into this venture.
Research the Market
The success of a rental property business depends on several factors, including the area where it is located. Make your research first before purchasing a property and make sure that it is located in an area where there is a high potential for growth. Properties that are near schools, shopping centers, churches, parks, restaurants, malls, public transportation, and movie theaters are likely to have more potential renters. Consider the tax rates and crime rates of the area as well before closing a negotiation.
Invest in Insurance
Securing landlord insurance helps minimize the risks of having problems with tenants and natural disasters. A landlord’s insurance covers everything from loss of rent, damage caused to the rental property, and legal expenses should there be a legal suit from the tenants. This insurance provides liability protection to the landlord in cases where a tenant sues for negligence.
It is also recommended to not rent the property out to friends or family. They are harder to evict than strangers when they begin to cause problems to your business or when they default on their monthly rental fees. It is also highly recommended to screen potential tenants before giving them the keys to your property. This will save you from headaches in the long run.