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Investing in Real Estate: 7 Things to Know Before You Buy a Rental Property

Think you are ready to invest in real estate? Here are 7 things you need to know before you buy any rental property. HGTV may make it look simple, but you need to do your homework before you invent a penny in the real estate market.

  • Location, location, location: Location is still the number one priority in any real estate venture, whether you are purchasing your own dream home or a potential rental unit. Is it in a nice neighborhood? Arenearby property well cared for and maintained? What are the comps and can you charge enough to make a profit? What is the history of the property taxes for the property? If property values have decreased over the years and there are no signs of revitalization, then find a better location.
  • No matter how much money you have to invest, there will always be unexpected expenses: Don’t forget to calculate unseen costs such as property taxes, state taxes, liens, or any other surprises that may catch you off-guard. You might have budgeted for new carpet, but what happens if the basement floods? (Also make sure you have the appropriate insurance for the property as well – check flood plains, hailstorm claims, and other catastrophic weather-related history to get an idea of the coverage you’ll need.)
  • You are basically giving yourself a second job: landlord. Are you prepared, and do you have the time to handle what is involved in that role? You are now responsible for paying taxes, performing regular maintenance, repairing roofs, replacing heaters, finding new tenants when old ones move out, and everything else regarding that property even if it’s vacant…including mowing the lawn. If you have the time and the cash to invest, then it may be worth it but also consider if hiring a property management company might be a better option for your lifestyle.
  • Property wear and tear: Even with the most idyllic of tenants in place, the property will still experience some wear and tear, so budget accordingly. One landlord even recommends visiting the property frequently to prevent huge losses from occurring (it happens). Be sure to establish from the beginning what is the tenant’s responsibilities versus what are yours as property owner. You may have to cover replacing a broken AC unit, but the tenants should be responsible for replacing the AC filters every month.
  • Recognize that idle and empty equals lost revenue: Be sure you have a contingency plan for the times that the property is not occupied. For every day that the property sits empty, there will be lost revenue unless you have a plan of action in place. This may mean hiring a property management service to fill the vacancy, marketing costs of placing an ad looking for a new tenant, or even covering the mortgage yourself while you are trying to find a suitable tenant.
  • Don’t get the wrong tenants: Yes, it’s bad for your property to sit empty, but it’s even worse to get bad tenants. From people who don’t pay their rent, or to someone who end up dealing drugs on your property. Use a tenant screening service to check your prospective renter’s background, credit history and eviction records.
  • Provide an online payment option: Making it super easy for your tenants to pay their monthly rentalso makes it easier for you to collect what’s owed. Instead of waiting on a check in the mail, provide for instant and regular rent payments so that you can pay your bills as well. Other advantages of having an online portal is that it makes it easier for the tenants to submit maintenance requests, which means what is broken can be fixed faster – always a good idea when managing and maintaining a rental property.

And a bonus tip: Be sure to check the history of the property taxes before you set your rent rate for the property. You don’t want any surprises come tax time so be sure and incorporate any anticipated increases into what you are asking in rent, otherwise it comes directly out of your pocket.


Arnel Ariate is the webmaster of Money Soldiers.

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