3 Things to Know Before Buying Rental Property
Buying a rental property isn’t all rainbows and butterflies; once you become a property owner, you are automatically getting a new set of responsibilities and expenses which, if not dealt with on time, could grow more significant than your actual profit from the property you’d bought.
For starts, here are the four main things you should take into consideration before purchasing the property:
• The expected amount of rental income
• If your property location is profitable
• The annual expenses you will incur
• The risks that may come along
Aside from these elements, here’s what you should know before you become landlords:
Your Property Taxes Might Explode
Before you wake up to a property tax bill that will bring you to tears, you should know that property tax caps on rental units are a full percentage point higher than the ones on your primary residence and homesteads. So, if you make the beginner’s mistake like most first-property-owners do (base the rental price on your mortgage bill), you’ll barely break even after renting a home for a year. Instead of learning the hard way, do all research necessary before actually purchasing the property.
Good Tenants are Gold
Although most property buyers decide to invest in a property to pull in some profit from renting, renters can do more damage to your property than you could imagine! Spending $4,000 to repair your rental property after the tenants have vacated the apartment sure isn’t the scenario you hope for, is it? Plus, demanding (and rude!) tenants can be a real pain to deal with! To make sure your tenants will keep the property in good shape and treat it as their own, do the following:
• Ask for recommendations from their previous rentier
• Have several meetings with them before you rent them a place
• Ask for a recommendation from their employer (optional, but helpful)
• Give them a Q&A quiz to answer some fundamental questions like “What do you do when there is a leak,” or “How do you operate kitchen gadgets,” etc.
Repairs Will Be Unexpected and Expensive
When you own a property, there are two ways you can handle expenses (repairs, mends, replacements, etc.) that come with the property: you can be the one to pay them or your renters can.
If you take it upon you to handle every little thing that happens or breaks, it will cost you more money in the long run than you’ll get to earn in total. Just imagine having to replace a stove, an air conditioner, and a refrigerator all in only six months’ time! It is why it’s best to make a deal with your renters and have them fix everything they’ve broken.
Your obligation as a property owner is to have everything in the unit properly working before you give your renters a key to the place. This way you’ll minimize the damage and costs in the long-run and make everyone’s lives more comfortable (and wallets thicker!).
NOTE: It’s always smart to have an emergency fund for unexpected repairs and avoid dipping in your savings to save the day.
Becoming a landlord is not for the faint of heart. There’ll be plenty of situations to deal with and, no matter what, you’ll always be the first point of contact to handle them. Anything that can happen probably will, so be careful and strategize. For more useful information, you may reach us at info@LLCPM.com.