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By Katie Conroy
Purchasing rental properties has proven to be one of the most effective paths for beginner investors to take, but it comes with risks. For example, if your property is vacant, you’re responsible for all the expenses. If the market goes sour and you want to sell the property, it could take a while. You could also encounter difficult tenants, which sometimes leaves you wondering if the whole process is worth it.
Nonetheless, if you do your homework beforehand, come at it with reasonable expectations, and manage the property well, buying a rental property can result in a solid source of income and kickstart your investment portfolio. Here are some key tips to keep in mind as you prepare to purchase and manage your first rental property:
Ask Yourself if You Really Want to Be a Landlord
First of all, you need to be certain that you want to give the whole landlord thing a shot. Since this is your first property, you will likely need to do many of the repairs and maintenance tasks yourself. Also, there may be times when you have to be firm with tenants in order to protect your investment. So, if you wouldn’t consider yourself handy or if you hate confrontation, then you might want to reconsider being a landlord unless you have the budget to hire property managers.
Tackle Debt and Save for Down Payment
In most cases, purchasing an investment property is not a good idea if you are still paying off student loans, medical bills, children’s college tuition, or other forms of significant debt. Focus on getting rid of outstanding debt, and you’ll be in a much better place to start your real estate investment endeavor.
Along with paying down debt, you will need to prepare for a down payment. Unlike the 3% down payment that people can get for their primary home, mortgage insurance is not an option for rental properties, which means you will likely need to save up at least 15% to 20% for the down payment on your investment property.
Look for a Low-Maintenance Home in a Solid Location
Fixer-uppers have their charm, but they’re not ideal as investment properties, especially when it’s your first one. Even with a great sale price, the amount you spend in renovations will likely snuff out any income you could generate. Look instead for a home that you can purchase below market value and that only needs minor repairs.
Moreover, consider the location of the property because it will play a major role in how lucrative your investment turns out to be. Choose a rental property in a safe neighborhood with lots of nearby activities (e.g., restaurants, shopping malls, parks, etc.). Other things to look for are a good school district, low property taxes, and a thriving job market.
Make Sure the Property is Secure
As far as managing your rental property goes, the most important thing to consider is security. You want the property secure, but you also want to stay within your budget. Start by ensuring the property is well-lit, planting prickly bushes by the windows, and getting a doorbell camera. If your property is in an area that’s subject to regular break-ins, you might want to consider a high-end alarm system. These systems tend to average about $675, not including any monitoring services you opt for.
Focus on Essential Repairs
You might be tempted to engage in a full remodel of your rental property. But remember that it’s your first property and that you need to generate income to make the investment worthwhile.
Focus on basic maintenance and must-have repairs, such as fixing broken steps, replacing a shoddy HVAC system, and getting appliances that work. Once the essentials are taken care of, you can start making plans for sprucing the property up by repainting the walls, replacing the floors and countertops, and so on.
While these tips can serve as a good guide as you set out on your endeavor, purchasing and managing an investment property is a complex process. Be sure to do further research and become well-versed before you go all-in on your first property. That way, you can put yourself in the best position to succeed.
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