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Rental homes are excellent sources of passive income. However, they are more complex than they seem. Here are ten things to consider before buying a rental home!
Are You Ready to be a Landlord/Landlady?
When contemplating whether or not you are landlord material, it is essential, to be honest with yourself. The duties of a landlord extend much further than simply buying and renting out a home. It will help if you prepare to deal with prospective and future tenants, repairs, taxes, lease agreements, insurance, and more.
Don’t Expect Big Profits Overnight.
Being a landlord is not a fast track to wealth by any means. Like any other legitimate operation, it takes time, hard work, and careful planning. It is important to understand cash flow and how rental property returns work. Landlords can eventually become financially independent by gradually acquiring more and more properties over time. It leads to the point where they make enough money to leave their regular job and entirely focus on their landlord business.
Decide Between Buying and Financing
An important consideration before buying a rental home is the method with which you will pay for it. Of course, you can do that if you can afford it without a loan. But there may be better options, and it depends on you. For instance, you could be placing down payments on multiple properties and financing them all instead of buying one outright.
Valuation of Property
It is essential to determine the actual value of a rental home before you buy it. Consider the condition of the house, needed repairs, and location, and estimate what your monthly net rental income will be from this particular property.
Know the Law
For your protection, you should know the laws regarding rental properties and landlord-tenant relations. It can save you from costly legal fines and potential lawsuits. Also, ensure adequate insurance on your rental properties to protect you from significant losses.
Budget for the Unexpected
Keeping extra cash on hand to cover unexpected maintenance is a must. You never know what might break or what repairs will be needed. The last thing you want is to have angry tenants because their quality of life has decreased due to your lack of preparedness.
Furthermore, you should have money set aside for vacancies. You should expect that while searching for tenants and between tenants.
Manage Your Leases
Before you rent out a home, you need to have a lease prepared. Getting legal help to set you up with a lease that offers adequate protection is ideal. Also, renew each tenant’s lease on time to prevent issues with vacancies.
Vet Your Tenants
One standard practice that will save you many headaches is vetting your tenants before signing agreements. A simple background check can save you months or even years of frustration dealing with a bad tenant. However, you will inevitably have a problematic tenant at some point.
Be Prepared For Taxes
Be prepared with all of the proper documents when tax season comes around. Failing to disclose rental earnings and activity is against the law.
Consider a Property Management Company
You can take many considerations above off your hands for a fee. A property management company will deal with lease agreements, budgeting, tenants, and repairs for you. If you are interested in being a landlord but are not a “people person,” this may be an excellent choice!