Over the past few years, inflation has been low, causing rent prices to stay relatively stable. However, job creation continues despite a decrease in unemployment rates. As a result, the number of potential tenants remains high, and demand for rental units is expected to increase in 2017. This means renters have an easier time finding affordable housing options than in previous years, so there’s little risk of them moving out of your rental property is in relatively good condition.
During the housing crisis, landlords had no tenants, and many homes sat vacant for months on end before finding renters. As a result, they could lower their monthly rent prices to attract more people. If you’ve ever tried renting out an apartment or house, then you know that it’s not always easy to find new tenants after the previous ones have left.
Here are some factors to consider before buying a house and land or other properties and starting a rental property business:
1. Current Market Conditions
This is the “seller’s market.” It may not stay this way forever, so it’s crucial to take advantage of good rental conditions while you can. The number of available units is low compared to the number of renters who want a place to live, and there are more properties on the market that need tenants. This means landlords have a high chance of getting a renter within a month or less after listing their property for rent. Now might be the best time if you’re thinking about starting a rental property business.
2. Legal Issues
Make sure you know what you’re getting into before signing your name on any forms or agreements related to your rental properties. There are certain legal documents every landlord must have, such as a rental agreement and a lease, to protect themselves from future legal actions by their tenants.
3. Location of the Property
It’s important to choose a house or land that has space for additional units or more rooms so you can increase your income. You should also try to get properties near common areas such as shopping centers, markets, and transportation routes so you won’t have trouble renting out all your units and getting regular customers at the same time.
4. Repairs and Maintenance of Your Rental Property
Many things may need fixing or updating before you show your property to potential renters—new paint on the walls, broken tiles in the kitchen and bathroom, dirty carpets, etc. These little details go a long way in getting you a good renter and keeping them longer since they feel like their rental property is in an “invested” condition.
5. Limitations on Rental Expenses
Having self-employed rental properties will indeed save you money on taxes, but don’t forget about extra expenses such as repairs, renovations, and remodeling costs when accounting for your expected income and expenditures.
Your location may require you to add specific features such as fireplaces, hot tubs, or pools, depending on the amount of rent you charge per month. Some renters may also want off-street parking built outside their house or unit so cars won’t block the driveway when it snows or rains heavily.
6. Loan Considerations
If you want to buy a house or land with existing structures, make sure it’s worth the cost. There are many factors to consider when taking out a loan for your rental property, such as the age of the building, its usable space, how much income it will generate every month after expenses and debt service, etc.
Typically, banks give out loans with a maximum of 30 years for commercial properties, including malls and business centers—around 25% is interest, and 75% is repayment. You can also get special mortgages that require a downpayment as low as 3% if you’re buying a single-family home in some countries.
Ideally, you should have at least 20% of the total cost of your property as a downpayment. This means that the bank will give you a loan for 80%, and your monthly payments will cover the remaining balance until you’ve paid it all in full.
It’s important to buy insurance for your rental property if something unexpected happens, such as a fire, an earthquake, or a robbery. The good news is that you can deduct some of your expenses when paying taxes, but it all depends on the type of policy you get and whether it applies to commercial properties.
You might also want to consider getting life insurance for family members staying at the house or unit you own. This way, if they pass away while living there, your outstanding debt will be paid off by the company selling you the insurance policy.
8. Property Management Company
Suppose you have many rental properties, especially investments located far away from where you live. In that case, it may pay off better financially to get help with the management of all your properties.
Property managers are typically hired with an initial fee plus a percentage of the monthly rent you get from your tenants. Still, it’s worth it when you don’t have to worry about vacancies, repairs, or legal issues regarding late rental payments or damage fees.
Rental properties are a great option today for making money. Still, you should also consider all the factors mentioned above before jumping into that business—it can turn into a nightmare if things don’t work out the way you expect them to.