Consider the challenges, opportunities of becoming a landlord
If you’ve ever thought about buying a home strictly for use as a rental property, this may be a good time to start. In all likelihood, it will be a sound investment for your future. However, there are some factors to consider:
Of primary importance is your willingness to be a landlord. It’s not for everybody. Do you have experience with tenants? Is there a steady stream of tenants in the area? Are you going to be close enough to get to the property in case of emergency or other situation? Who will handle repairs and maintenance? How will your insurance coverage change?
For a rental house, it’s obviously a goal to keep tenants in the property. Almost as important is to make sure that what the tenants pay covers your expenses of owning the home. These expenses should include mortgage, tax, insurance, and maintenance. If you can break even, you enjoy available tax benefits and profit from the overall appreciation of the property. Additionally, rents tend to go up over the years while your mortgage payment, assuming standard financing, is fixed.
Your insurance coverage will be substantially different as well. Landlord insurance can protect you from loss of income in the event that the property becomes uninhabitable, like in the aftermath of a fire, or during a tenant/landlord dispute. The Texas Department of Insurance has a great website that offers all kinds of information and help for those seeking all kinds of insurance.
Professional guidance
Finding a house that will turn into a performing asset can be tough. I recommend that you use the services of a Realtor that specializes in investment property. Your wants and needs are much different from a retiree or a first-time home buyer. Your Realtor will understand this and may even have investment properties of their own.
Realtors can also provide some history about the neighborhood and other valuable information and may be able to give you a pretty good idea as to the estimated cost of certain repairs.
Once you have acquired the property, you may consider hiring a property management company — particularly if you’re not located close to the property or you have more than one rental unit. Many Realtors specialize in property management and can screen tenants, collect rent, inspect and maintain the property.
Are you handy? It’s good if you are. But if not, make sure you know who to call. Be ready to make some repairs. Tenants expect things to be right. In fact, that’s why many of them choose to rent.
Your Realtor may even have a vetted list of contractors to help you with any projects.
Another option you may want to explore is purchasing a home warranty for the property, which will cover the appliances, electrical infrastructure, and the plumbing. These warranties are typically affordable and give you peace of mind. Be sure to read the policy to know exactly what is covered.
There are pros and cons to owning rental properties, but if you have what it takes and your financial situation allows for it, it’s an excellent way to accumulate wealth.
For more information, please visit www.HAR.com.