It may be common knowledge that buying rental property can be one of the fastest and secure ways of building up serious wealth- but the ‘how to’ knowledge is not so common. The process or steps to buying rental properties are not so different from that of buying your own home, just a few differences. Nowadays, the legal rights of tenants have been made quite explicit, so as a landlord, you must also know your rights. But, first of all, you need to invest in the right type of home.
Step One- Do your homework before going in for the dotted line.
As soon as you have decided to buy property for rent, don’t think of the décor or paint, there are other important factors which you have to consider.
What kind of investment you want to buy?
How much can you afford to spend?
What kind of a neighborhood would you like to invest in?
What is the average rent in your area?
What kind of return on investment you want to make?
Doing your homework right is important.
Step Two- Annual Expenses in Owning a Rental Property
You can break the expenses into both fixed and variable expenses.
Fixed Expenses- These are the recurring expenses like your house tax, insurance, maintenance and repairs, and cost of property management services.
Variable Expenses- Don’t forget to keep aside funds for unplanned expenses like replacement of water heater, air conditioner, roof, fencing, flooring or plumbing. Calculate your expenses and be prepared, but your calculations can be workable provided your property remains rented. You must factor in risks like not finding a quality renter.
Step Three- Risks of buying rental property
Before you buy rental property you have to consider the following risks-
Your property could sit vacant between renters, lowering your overall returns
You could incur legal expenses should you evict a bad tenant
You could incur heavy repair costs, should a bad tenant cause severe damage to your property.
A qualified management firm will help curtail the risks as they will find high quality tenants. Rental property can provide a steady source of income but like any other investment you need to know what you are getting into before buying. So get ready for land lording after you have clinched the deal and learn the art of tenant screening so you get the best tenant that is to say the best deal.
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