What you need to know before purchasing a rental property

rental property

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The economic climate changes rapidly. What was considered a solid investment in April could go bust in May. At this crucial time, you have to put your money on a resource that is a constant need. What need could be more constant than prime real estate? You may not need to move out of your home just yet to scoop up some Atlanta real estate, but there are plenty of properties that you could rent out.

Rental properties can be an incredible source of income. With enough savvy, you’ll be able to save up twice the amount than earned in your 401k. Here are some facts you’ll need to know before you begin shopping for your ideal rental.

Debts First, Property Later

Before you begin to consider rental ownership, give some attention to the debts you owe. Debts incurred from student loans, car purchase, or even your own home mortgage is bound to eat through your income. A rental is an investment that requires your full financial attention.

Make It Easier on Yourself

When scouting out properties, start by looking in your local paper. Owning a rental home means you are the landlord. Being a landlord entails more work than collecting a check every month. You may also have to serve as the building’s superintendent.

Imagine you live in Vermont, but rent out a vacation home in Florida. If another hurricane breezes through, then the costs fall on you. You’ll have to book a round trip flight to go out and assess the damage. Once you’ve filed a report with an insurance agent, you’ll have to get a local contractor to repair the damage.

Build a List

As you search different houses, make a list of the ones that might come back to later. Narrow this list down based on each property’s basic living needs. Keep within a minimum of 900 square feet. It must have three bedrooms, 1.5 bathrooms, with an available 1-car garage.

Don’t think of yourself as the owner of the house. Think only in terms of what you would want as a roomer. The only thing you’ll take ownership of is the $900 a month.

Leverage

Leveraging your rental isn’t as super-secret as pitch men would like you to think. Paying the mortgage on the home you’re currently living in is leverage. Since home purchases require a 20% down payment, you use your own money for the down payment on the rental. The remainder can be borrowed.

The tricky part is the property’s value. If the value drops to 30%, you could be stuck paying the full loan on the rental, plus utilities, plus the mortgage on your home. On a lighter note, the property could appreciate value by 5% if the buyer is prudent enough.

Know Your Tenants

The final step is going to be the hardest-choosing the right tenants.

During interviews, ask candidates to submit to background and credit checks. Focus on previous rental payments, if any. Introduce yourself to neighbors and checkup often on how the new occupants are doing.

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