7 smart moves for getting started as a landlord
Multi-family Real Estate Investments in Houston
Being a landlord isn't for everybody, but in today's rental market, it can be a smart way to grow your wealth. That's because demand for rental units continues to be strong — driven by the failure of wages to keep up with the rising cost of housing.
In fact, the number of renters has risen steadily since 2007, when the housing market collapsed, while the number of homeowners has fallen. Meanwhile, although home prices have rebounded in much of the U.S., they're only expected to climb about 3% this year. By shopping carefully, the overall picture remains favorable for investing in rental real estate.
If you're still itching to tap your inner real estate baron, here are 7 smart moves to help you get started as a landlord:
1. Recognize that being a landlord is a business
Being a landlord is different than being a private homeowner. It's a business, and you need to treat it like one. Any property you buy has to make sense from a business perspective, not because it's a house you'd like to live in. That means it should be a reasonably priced home likely to appeal to the kind of tenants you're looking for. You'll also need to be able to qualify for a loan.
2. Start small
We suggest starting with a single house or smaller multiple-dwelling unit, perhaps with a partner, to see if the business really suits you. Single-family residences are the easiest properties to buy when you're looking for investment property. Condominiums usually require a larger down payment and monthly association fees. Starting with a single home will allow you to get a feel for the maintenance, bookkeeping and other work required.
3. Don't invest somewhere you don't know
An old joke is that the three keys to a successful business are "location, location, location." That's especially true for rental property. A home that seems to be a steal might be priced lower because it's in a neighborhood most people wouldn't want to live in — with higher crime or poor schools, for example. For that reason, investing in out-of-state property is a gamble. Buying in neighborhoods you know well or have carefully researched is the smart move.
4. Figure out the right rent
Rents differ widely around the United States. You need to determine if that rent will be enough to cover your costs. Too often, people take a look at their loan and think if they cover that, they're doing fine. But you'll need to pay property taxes and insurance. Also, assign 5% of gross rental income to regular maintenance and another 5% to pay for the downtime and repairs that come with vacancies. Not budgeting enough for maintenance is a common mistake. Things break. You're going to need money in a bank account to deal with those expenses.
You'll also want to know the rate of return you're getting on your investment. There are formulas, such as the "capitalization rate," to help with this, but you might want to turn to a professional. A good accountant can make sure the purchase makes sense.
5. Be ready to get your hands dirty
If starting with a single home, you'll find it to your financial advantage if you can manage the property yourself. That requires those "certain skills". The better you are with tools, the easier it is to maintain rental property without having to call in costly plumbers or electricians every time something breaks. If you're the kind of person who has put off fixing your own leaky faucet for a month, this probably isn't the business for you. Likewise, if you're uncomfortable at the thought of calling tenants to ask where their rent check is, you need to look elsewhere or hire a property management company, which will add to your expenses.
6. Get professional help when you need it
If you decide to manage your property, you'll probably want to consult a real estate lawyer to get a solid lease and learn the rights of tenants. You may want an accountant, and you'll need to know some good plumbers, electricians and other tradespeople. Turning to a property management company is another approach, although it will take a bite out of your earnings.
It's important to get references and check properties when choosing a management company. But even with a good firm, the final responsibility for taking care of a rental is the owner's.
7. Keep your tenants happy
Of all the costs associated with being a landlord, the biggest one is vacancy. Every time a tenant moves out, you're going to spend money, probably quite a bit of it. That means finding and keeping good tenants is the heart of successfully investing long-term in real estate.
For many investors, real estate is uncharted territory. Unlike stocks and bonds traditionally considered “standard assets” real estate is an “alternative asset,”. But just because real estate is an unknown doesn’t mean that it should be avoided as an investment opportunity. When approached correctly, real estate can be a lucrative and reliable way to generate substantial income. We offer you the best plans, encourage you to ask for any of our investments.
Multi-family Real Estate Investments in Houston.
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