What You Need To Consider If You Are Buying A Rental Property
Today, investors disagree on whether it’s a good idea to buy and hold real estate. While there are more who believe this investment has more positives than negatives, there are still a small amount who disagree. Renting means dealing with maintenance and upkeep, tenants, and legalities. However, having a good property to rent can also mean short and long term income – and if it’s in the right location, it may even be steady income. To ensure this outcome, there’s a few things that you should see to before searching for rental properties. If you’ve ever thought about this type of investment, here are some key aspects to remember.
Finding financing is the first part of any large purchase, and the process for financing a rental property differs from that of owner-occupied properties. For one thing, a higher down payment will be required. The usual down payment needed is 20-30, with many factors determining the final percent needed. The credit requirements are also more strict when purchasing rental properties. Most lenders will require a 700 or higher score, with some even requiring a score of 720 or higher. Finally, you will not only need to have the funds available to close, but you will need to have them in your bank account for 60 days or more. If you make large transactions (deposits or withdrawals), they need to be verified and you will want to keep strict account of them.
The next thing to consider is management. It’s a good idea to consider how you will be managing a rental property before making the commitment to buy it. Whether you have several rental properties already, or are looking to buy your first one, management will be very important to its success. There are a few options available to you for managing a property. The first option, of course, is to manage it yourself. With this option, you will save money each month, which adds up to considerable savings each year. However, managing the property yourself means you will need to be available at all times, as it will be your responsibility to handle complaints, maintenance issues, repairs, and more. Another management option is hiring a dedicated manager for the property. This option allows you more freedom, but will cost a bit more. You are still responsible for paying for maintenance and repairs, but the manager will handle calls, complaints, and getting the work done. The appropriate option will depend on your goals with the rental property, funds, and business needs, but you will want to make the decision before purchasing anything.
Getting an attorney is often treated as an optional part of buying a rental property, but it should be considered essential. Even if everything is done right on your end, there are still instances in which a deal doesn’t close. Having an attorney help you can often make a huge difference, and they should be considered a great buffer between a seller and buyer. They will work to smooth out issues and keep you protected during the transaction. An attorney will also prepare and review leases to be sure they are legal and enforceable. This is vital, since the lease will protect you, your property, and your tenant. Poorly written leases with either generic language or unseen loopholes open you to lawsuits and litigation, and your attorney will be able to point out any issues in a lease agreement so that doesn’t happen. Because of their critical role, be sure to take time and find the right attorney for you. This would mean a local attorney who deals with real estate and has a dedicated paralegal.
You will also need to seek out a good insurance agent. While a lease serves as one layer of protection for and from tenants, your homeowner’s policy serves as a different layer or protection that is absolutely necessary. For this reason, it is worth your while to spend the time and money required to get the best coverage policy for your property. Don’t work to save as much money as you can on the premium because this can often backfire. Saving a few dollars each month can end up costing you thousands if there’s an injury or property damage. If your plan is to buy multiple rental properties, an insurance agent will help you find the best policy for each property, because they may not all be the same. They can help you save a lot of time and give you some peace in the knowledge that you and your property are protected.
Finally, you will want to consider maintenance. If you will be managing the property alone, or even part-time, you will want to proactively find help. You can begin by looking for a handy-person who can handle all of the minor issues that might occur from changing locks to clogged toilets. The, looks for people or companies that specialize in things like snow removal and landscaping. Keeping the grounds of a property is needed all year, but what is needed may change based on the seasons. Waiting until there is a problem to find these people or companies will mean you pay much higher rates and may have to wait longer for service (which means your tenants have to wait longer. Also look for people who can perform licensed checks on furnaces, clear gutters, building inspectors, etc.