Interested in Owning Rental Property? 4 Things to Know First
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Owning rental property can help you earn passive income that adds to your worth and could make it possible to fund your retirement. There are a few things that you should know before you get involved in real estate, though. After all, if renting property didn’t have its potential downsides, then more people would do it.
When you bought your primary home, you may have made a down payment that was less than 20 percent of the property’s value. Lenders will often let people with good credit borrow money even when they don’t have 20 percent as a down payment. The lender covers itself by having you purchase private mortgage insurance.
You don’t have that option when you buy investment property. Instead, you’ll need the entire 20 percent as a down payment before anyone will lend you the money.
You don’t want to risk losing too much money on your first adventure in property investment, so look for a house with an affordable price. The lower price will protect you from risk. It will also help you pay the 20 percent down payment that you need to secure a loan.
Owning property always comes with expenses. Before you decide to invest, learn about the potential fixed and variable expenses that you might have to pay while you own your rental property.
Some common fixed expenses include:
- Property taxes
- Insurance
- Maintenance and repairs
If you use a property management service, you will have to pay that company, too.
Common variable expenses usually involve repairs for things like:
- Leaking roofs
- Air conditioners and heaters
- Plumbing
- Broken water heaters
You’ll need to keep money on hand for these repairs. If you wait too long to solve the problems, then your tenants could have good reasons for withholding their rental payments.
The amount that you can charge a tenant depends on factors like your location and the size of the rental property. Without taking a close look at your specific market, it’s impossible to know how much rent you can charge.
Research the rental properties in your neighborhood to get a better understanding of the rental market.
Becoming a landlord can help you earn a lot of money. Like all investments, though, there are risks to investing in property. Make sure you understand your risks so you can minimize them as much as possible and set yourself up for success.
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