Buying rental property in 2019 is still a sound investment. In fact, despite predictions otherwise, the demand for these properties has continued to surge. But there are a lot of other things that go into becoming a landlord other than just purchasing your property. And although it can be a fairly passive source of income, there are certain things that you’ll probably need and want to handle yourself. Here is the complete guide to keep you on the right track.
Secure your financing
Getting financing to purchase rental properties isn’t quite the same as it is for a primary residence. It’s considered a business and therefore, you’ll usually have to put down a larger down payment, pay higher interest rates, and have some collateral. But that doesn’t mean it has to be a difficult process. Many mortgage services are happy to help you with investment property finances. But it is wise to do some comparison shopping for the lowest rates and best terms.
Buy the right property
In order to have a successful rental property business, you’ll need to buy properties that appeal to renters. And you’ll want it to be as profitable as possible, so the decision usually comes down to how much you can charge for it in comparison to your expenses. But that’s not the only consideration. You’ll want to scope out the neighborhood of the property you’re looking at and ask some key questions. Are there a lot of vacancies? What’s the average cost of rent for comparable properties in the area? What is the crime rate?
And you’ll also want to find out how much you’ll have to pay in taxes and insurance. Keep in mind that some areas bring higher rates for both. High-risk areas such as flood zones might call for higher insurance rates. And some school districts charge higher taxes.
Obtain the proper licenses
Not all cities require licensure for renting out properties, but it’s important to find out if yours does. The best place to do so is at your local City Hall or housing development offices. If your city regulates rental properties, you’ll probably have to fill out the proper paperwork and agree to an inspection at your expense.
Even if your city does not require a special license for rental properties, you’ll still need to register your business and get a business license. City Hall is also the place you would start when asking about these. They may direct you to other offices to finish up the process, but they can usually give you an idea of what to do.
List your property
Marketing is something that often gets overlooked in the real estate rental business. And some areas are in such high demand, that there isn’t much need for it. But there is usually a bit more advertising involved for new landlords. You can choose to market your property yourself by putting in the local paper or talking about it on social media. Or you can go through a real estate agency and let them do it for you.
This is a great method for landlords who would like to make their business a little more passive. The way it works is that the agency advertises and shows your property to prospective renters and take a set commission. And while this varies between companies, it’s typical to pay one month’s rent.
Choose your tenants
If you can be picky during your screening process, you can avoid a lot of potential problems that come with bad renters. So, never neglect to do a thorough tenant background check on all your applicants — no matter how good you feel about them at your initial meeting. The background check should include the applicant’s credit report, criminal history, and rental records, but it’s up to you to decide what your minimum criteria will be. For example, many landlords won’t rent to anyone with a credit score below 620 or with a monthly income less than three times the amount of rent.
Becoming a landlord is a sound financial decision, especially in today’s market. Keeping these tips in mind, you’ll be able to stay on the right track to running a successful rental business, be it with a single location or multiple.