Rental property can be an excellent way to bring in additional money as well as invest in an asset that is actually tangible; however, investing in rental property does involve more than just purchasing a property and watching the money roll in. Many people believe that the biggest hurdle they may face is obtaining the loan; however, this may be easier than they actually think. It is other issues which you may face along the way which should be considered before you actually take the step of purchasing rental property.
First, always make sure you take the time to know exactly what you can afford. Many people make the mistake of overlooking this step, assuming that the rent will cover the mortgage payments. If you are not sure of exactly what kind of rent you can get before you purchase a property, you could find yourself in financial trouble later on. You should always research rental properties in your local area to understand the going rates for similar properties. Check the newspaper for information on going rental rates. It is also a good idea to check with your local landlord’s association for rental rate information.
In addition, you need to take into consideration expenses which may come up along the way. Ideally, you should have a reserve fund established to tide you over in the event you experience emergency expenses or your property is vacant for a period of time. Before you commit to purchasing a property, make sure that you will be able to rent the property for at least an amount that will cover the mortgage as well as still have a sufficient amount left over to cover insurance premiums, maintenance costs, property taxes and income taxes.
In addition, you need to give some thought and consideration to the type of property that will best suit you. You can find rental properties in many different sizes as well as types. Each of these different types can pull in different rental rates as well as attract different types of renters. So, giving thought to the property that best suits you is really an important step which should not be overlooked.
For example, if you purchase a property that is near a college or university you are likely going to find that most, if not all, of your tenants are college students. While you may never have a vacancy, you may also find that you have a continual turnover, problems collecting rent and even possible damage to the property itself.
In addition, you should make sure you understand your responsibilities as a landlord. Keep in mind that your obligations are typically regulated by the state in which the property is located. Some states have very little regulation while other states are highly regulated. If you fail to follow state regulations you could find yourself in for quite a bit of financial as well as legal trouble. It is always best to educate yourself ahead of time.
Finally, make sure you consider how much insurance you will need to not only property the property in the event of damage or destruction but also to cover all liabilities as well. One liability claim can be enough to cause serious repercussions so this is not an issue where you want to take a short-cut. Remember that it is your responsibility as the landlord to provide liability insurance, not your tenant. If someone should slip and fall on your rental property then it will be you who is responsible, not the renter.
Rental investment property truly can be an excellent investment and income builder provided that you are prepared and understand what you should expect from the outset. Do not be afraid to seek help where you need it, especially from associations and from professionals such as attorneys. This is the hallmark that can often set a successful rental property investor apart from one who fails.