What It Really Takes for First-Time Investors to Buy and Manage a Rental Property Successfully
Even as more people are seeing the value in owning rental properties, there are still lots of misconceptions about what it’s really like. For one, real estate investing isn’t a get-rich-quick scheme. Investing in real estate can be lucrative, and it’s an excellent way to build wealth for retirement, but it does take time and money. This is why we want you to know exactly what to expect when owning a rental property, so you can make the best decisions.
The first big consideration is how much work goes into getting a property rental-ready. If you have the time and talent, buying a fixer-upper can result in a big payoff for your effort. However, as a first-time buyer, you may be better off buying a property that doesn’t need a ton of work. Most people can fix minor cosmetic issues themselves, but remember that major renovations require a contractor (and extra expenses add up).
Once your property is rented, your primary responsibilities are to keep it in good condition and handle relationships with tenants. Staying on top of maintenance and the overall condition of your property is essential, not just to be a trustworthy landlord but also to ensure tenants are happy and want to stay long term. Many investors find that hiring a property manager to assist with these responsibilities is tremendously helpful. If you go this route, be sure to find a rental property manager who is reputable and whom you and your tenants can contact any time, day or night.
Along with having an idea of the work involved, the success of your investment depends in large part on anticipating all costs. When you think about how much you can afford, one thing to keep in mind is that you may need a bigger down payment for an investment property than you would for your own home. According to U.S. News, you may also get a better interest rate when you have a bigger down payment.
Besides the purchase of the property itself, you also need to factor in other expenses, including property taxes, home insurance, and maintenance costs. Forbes recommends being especially diligent about researching property taxes and insurance, because these decisions can make a major impact on your bottom line. For example, a home that seems to meet all your criteria but is in an area with high property taxes may not be the one to go with. Along the same lines, be sure to shop around and compare insurance rates before selecting a policy.
Making the Numbers Work
There are many factors that go into making the numbers work in your favor, but at a very basic level, what you want is for monthly income from rent to be greater than your total expenses. Once you know what your budget is, the location where you choose to buy will affect this calculation. When you buy a property in a prime location, you can expect to find tenants who are willing to pay for what the area has to offer. Properties in prime areas also tend to be in high demand and stay rented more consistently.
A smart investment is one where the cost vs. income works in your favor consistently, but another thing to keep in mind is that you’re also investing for the long term. The extra cash in your pocket each month is nice, but you can also expect a property’s value to appreciate over time. Plus, when you finance a property through a mortgage, each payment you make (with income earned through rent) gets you closer to owning the property outright.
This is an example of how you need both short- and long-term goals in real estate. In the short term, start by choosing the right location and the best property to maximize rental income. Making these careful decisions now will help make your investment a success and keep your long-term goals well within reach.
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