Are you thinking of buying a second house as an income property? You don’t really need two and you don’t want a vacation home, but the idea of investing in property seems too good to pass up. More and more people are starting to want to invest in real estate.
But Before you join the crowd and scoop up an income property, consider these 6 things.
Television makes investing in real estate look easy. But that is not the case. There is a lot of work and planning that goes into being a landlord. There are real estate matters, accounting, contracts, physical work on the house, and possibly collections that you need to deal with.
You are not going to be successful overnight when investing in real estate. Many people are unsuccessful because they give up too soon. Even if you are breaking even on your rental in the beginning, you should stick with it because the principal of your loan is being paid down which is building equity. Over time the rental should appreciate in value.
You need to know the law for the state that you own property in. When it comes to the security deposit, you need to make sure you understand and follow exactly what they require you to do. If not, the tenant can take you to court for double the deposit.
Strict accounting and adherence to the details is important.
Being a landlord can be a lot of work and it means you will need to be available to your tenant 24/7 in case there is a problem. If you don’t want to deal with all that, you can hire a management company, but they usually charge between 6 to 10 percent of the rent. You need to weigh the pros, cons, and your finances before taking this step.
If you own your own house, you understand that the unexpected can and will happen with the house. The same thing is true with your rental property. You need to be prepared and budget for these maintenance and emergency items.
It is recommended that you save 20 to 30 percent of the rental income in order to handle these situations.
It is not uncommon for newer landlords to forget about renewing leases. This means that the tenants can stay in the house living month to month, and as the landlord you have no idea when they might plan on leaving. It also means that you cannot increase their rent. It is important to stay on top of lease renewals.
Being a Â landlord and owning investment properties can be lucrative. However, you have to be ready for the unexpected and have a clear plan if you want to make it work. Be objective as you think through the options and decide if investing in an income property is right for you at the moment.