Owning a rental property can be a great way to generate income and build long-term wealth. However, getting started with your rental property can seem daunting, especially if you’re a first-time investor. To help you get started, we’ve put together some tips that can make the process smoother and more manageable.
8 Tips To Starting Your Rental Property
Define Your Goals:
Before you start searching for a rental property, it’s essential to define your goals. Ask yourself what you hope to achieve with your investment property. Do you want to generate passive income, build long-term wealth, or both? Are you looking for a single or multifamily property? You should have your goals defined in writing or somewhere you can actually plan out how to achieve them.
As rewarding as a rental property can be, they can end up being bad investments if you don’t plan properly. Once you’ve defined your goals, you can determine your investment strategy and make informed decisions about the property you want to buy.
Determine Your Budget:
Determine your budget before you start looking for a rental property. Be realistic about the costs associated with buying and managing a rental property, including property taxes, insurance, maintenance, and repairs. Make sure that your budget is sufficient to cover these costs, as well as any unexpected expenses that may arise.
It may also be a good idea to pay off personal debts before trying to invest in a property. Of course, there is no reason an investor can’t have debt when buying a property, it will just be easier to save money when most to all of your larger debts are paid off. In fact, most people will experience debt when buying their first rental property.
Get Pre-Approved for Financing:
Getting pre-approved for financing will give you a better idea of what you can afford and help you avoid wasting time on properties that are outside your budget. Shop around for the best mortgage rates and terms, and choose a lender that offers the most favorable terms for your investment strategy.
Keep in mind that the higher your monthly payment is, the less cash flow will be available. With homeowner’s insurance, you may have even less. A lot of people don’t realize the actual amount of money they will end up going into your property, so it is important to have a solid idea of your financing, and what you are going to do when things may not go as you anticipated.
Research Property Locations:
Location, location, location! The location of your rental property is crucial to its success. Research the local rental market to determine the demand for rental properties, the average rental rates, and the vacancy rates. This information will help you determine the potential profitability of your investment property.
There are other factors that make a location, a “good” location. Things you should consider include proximity to the community, size, the neighborhood niche, any added developments in the area, proximity to amenities (parks, trails, sports, etc.), and the overall appearance of the property. Depending on what you classified in your goals should also help determine the location as well.
Find the Right Property:
Once you’ve determined your budget, researched the market, and obtained financing, it’s time to start looking for a rental property. Look for properties that meet your investment criteria, such as location, size, and condition. Consider working with a real estate agent who specializes in investment properties, as they can help you find properties that meet your needs and negotiate a favorable price.
The most important part of this process is to remain patient. It may take a few weeks or even a few months to find a property that fits your needs.
Know Legal Obligations:
Depending on certain requirements state-to-state, property owners are accountable for five main areas under landlord-resident law. Landlords must first control how the security deposit is handled. Although state regulations set limits on how much can be charged as a security deposit, landlords are always free to do so. Also, the owner of the property must be disclosed by the investor. This disclosure basically entails letting the residents know (typically in writing) who owns the building and how to get in touch with them for things like rent payments, maintenance issues, and more.
Providing residents with keys or giving them possession of the unit is the responsibility of the property owner. Normally, this is carried out at a predetermined time or after the lease has been signed. Property owners must maintain the space in accordance with the terms of the lease and any state legislation once residents have moved in. And last, according to the laws of that state, investors are subject to a certain level of fault. To make sure you adhere to the necessary legal requirements as a property owner, always check with state and local legislation.
Prepare to be a Property Owner:
Being the main investor on a property means that you have to tend to all your resident’s needs or you have to hire a third-party property management company to do that for you. Preparing to become a property manager yourself is essential for resident satisfaction. You will need to be available to your residents for their rental questions, maintenance requests, and other emergencies that may occur. You’ll need to have general knowledge of these things or be able to outsource help for certain issues. Otherwise, hiring a property management company may be in your best interest (read below for more information).
Once you’ve purchased your rental property, it’s essential to screen your residents carefully. Conduct thorough background and credit checks to ensure that your residents are reliable and responsible. This will help you avoid potential problems down the line and protect your investment. Consider getting Landlord Insurance and double-check all expenses before finally taking the leap to start your rental property.
Be Prepared for Emergencies:
You’ll need to be prepared for emergencies, such as maintenance issues, repairs, and resident disputes. Create an emergency plan and budget to address these issues as they arise. That financing section we mentioned earlier should help prepare you in advance for saving money for these sorts of emergencies.
Owning a rental property can be a rewarding investment, but it’s essential to approach it with the right mindset and strategy. By following these tips, you can get started with your rental property and build a successful investment portfolio.
Consider Hiring Third-Party Property Management
The workload of an investor will be greatly reduced with the assistance of a property management company. Those that engage property managers will really discover that their time is better spent on more worthwhile activities than managing each property. Those who engage property managers in particular can increase their rental property portfolios’ assets without having to take on more work each day.
Here at Performance Asset Management, we do just that for you! PAM is the highest-rated South Eastern Wisconsin Property Management Company, specializing in leasing, management, maintenance, and renovations. If hiring a property manager is in your future, let us help you. Contact us today!