So you want to be a Landlord, well, in this economy and market, many prospective home buyers have left the market and they along with others who have faced an unfortunate foreclosure may be looking for properties to rent until they can get back on their feet.
Being a landlord can be profitable, especially if you are in a resort area or your properties are located near a college or a university. It can be a chancy proposition though if you are not educated in rental property ownership or if your personality does not fit with what a landlord has to face and do! Recently there was a survey and it found the 44% of RPO’s (rental property owners) lost money on their investments.
Yet if done right the profits, tax advantages and building of equity can allay any problems you have being a RPO.
What about NOW?
It’s true that “if they can’t afford to buy, they may be able to afford to rent”.
This means you as a LANDLORD, need to know your market before you jump into the RPO business. Check out the local rental ads, how many are there? What sort of rents are they asking for, and in what areas? Gauge for yourself how competitive the market for Rental Properties is currently. Is there a Rental Property Owner’s association in your area? Might be a good idea to check it out, as they keep track of dead beat tenants who try to “play” the eviction game and they can also be a source of good information about the local market for rentals.
Thus, if the market is inundated with Rentals, it may not be wise to enter the game yet.
Plan to Make a profit, not just keep EVEN!
When searching for properties whether foreclosures or owned outright, remember the rule that you begin
making your profit as a Landlord by BUYING RIGHT
in the first place. If you want to make money forget the rule I heard when first starting to rent properties. The other Real Estate people who invested back 10-15 years ago figured that 1% of you purchase price keeps you even. Yet, you don’t want to be just even, but you want to get ahead for profits to come in to you.
Estimate not only the cost of your loan, (unless you are buying out right) but also include maintenance (including immediate repairs needed) utilities, clean up, insurance, property taxes, etc. Then you will have an estimate of monthly and yearly costs of your investment. Look to one of my other pages to help you get a feel for what to look for and how to calculate expenses.
What type of Rental Property do you want?
Single Family Homes- Most RPO’s will tell you that SFH’s are their first priority, why? Because the tenant will usually pay all the utilities and probably be required to cut the grass, shovel snow, and other simple maintenance. More renters will desire single family homes in that they get the privacy that owning a detached home gives them. Then if you want to sell, SFH’s are the easiest to market. Stick to 3 bedroom homes, followed by 2 Bedroom homes, and NEVER BUY one bedroom units.
DUPLEXES or 2-FAMILIES- priority here will be single level buildings, then 2 story residences. Then the priority goes to bedrooms, 2-3 bedrooms are the most desired. They also retain tenants whose families may grow a bit during their tenancy. One bedroom apartments have the highest turnover of tenants and while not to be completely avoided like 1 bedroom homes, they would be at the bottom of the list. Along with this note residences that have SEPARATE utilities, meaning that while you may have to pay for water and sewer, (as these usually are not separate), you can have tenants be responsible for gas, electric, trash, etc.
MULTI-UNIT Buildings- Some RPO’s will swear by these, but yourr complications can be quadrupled or more, and when it comes to selling, if you desire to, this sort of building will be the hardest to market and sell.