Have you thought about adding real estate to your investment portfolio? Maybe you are moving to a new home and are considering renting out your existing home rather than selling it. Foreclosures and short sales which are unfortunately for many home owners on the increase, result in more renters in the market. When considering becoming a landlord it is important to figure out how involved you would like to be in the management of the property. Think through the following scenarios and how comfortable you would be handling each one.
- Advertising the available rental.
- Meeting with potential renters to show them the property.
- Evaluating rental applicants (you may want to review a credit report and background check for any red flags.)
- Negotiating a rental price and executing a lease.
- Handling any repairs or upkeep required on the property (either performing the work or making arrangements with contractors.)
- Handling or arranging for any maintenance required on the property such as shoveling the driveway when it snows or mowing the lawn during the summer. It should be addressed in the lease which routine maintenance is the responsibility of the tenant.
- Paying any applicable costs such as the mortgage, insurance, taxes, property owners association dues, and utilities each month the home is not rented.
- Addressing any complaints the tenants may have.
- Addressing any complaints neighbors or a property association may have about your tenants.
- Collecting past due rent in the event it is not paid on time.
- Evicting tenants in the event they are unable to meet the obligations of their lease. (There are laws in many areas protecting the rights of the occupants that must be adhered to.)
Depending on your personality and skill set this list might seem fun and challenging or overwhelming and undesirable. If you would prefer not to handle some of the tenant and property management duties you have the options of hiring a company to do this. Property management services are available for both short and long term rentals and using them will take a lot off your plate, but you will also give up some of your rental income for the property management fee.
By evaluating through the work required as a landlord, and not just the income potential, you can hopefully avoid any unpleasant surprises down the road. Your tenants will also be rewarded with a property owner who is prepared to meet their needs.
Financing Your Rental Home
Whether you are purchasing a home as an investment or need to refinance a property you already own, you will be required to take out an investment property loan if you plan on offering the home as a rental. While investment property financing can be a bit more difficult to qualify for than a loan for a primary residence or a second home it is important to be up front with your lender about your intentions for the property in order to avoid further problems down the road. Most lenders require at least 20-25% down when financing 1-4 unit rentals. Other terms, credit requirements, and conditions will apply.