Many of us know people who own rental properties and enjoy receiving regular income from those properties.
“Yeah, I have a couple of rentals in Small Town and two more in Little Burg. They produce X dollars every month for me!”
It sounds great. Income-producing properties? We think, “Geez, I should do that, too!”
But should we?
Should you?
Rental Property Investing Defined
Rental properties can be homes, condominiums, and multi-family units, or they can be commercial locations like office buildings, units in business parks and the like. Rental property investments are intended to be rented out in order to generate regular income. Like primary residences, rental properties can be purchased with loans from banks (mortgages) or with cash.
Are You a Good Candidate for Owning a Rental Property?
Owning rental properties is not a one-size-fits-all investment dynamic. What works for one investor may not work for another, and what works for you may not work for your compadre. The factors that determine the property purchase include an investor’s budget, available cash, credit worthiness, buying power, time available, resources, interest in managing the property, and family or spouse support.
Ask yourself these initial questions to help you know if rental property ownership is something to explore further:
- Can I afford to buy a rental house or a commercial building?
- Do I understand the differences between an investment property mortgage and a primary residence mortgage?
- Do I have the credit worthiness to qualify for an investment property loan?
- Do I know the year-to-year tax implications of owning a rental property?
- Do I have enough cash to carry me through periods when the property is empty?
- Do I have enough cash to pay for unexpected repairs?
- Am I up for the commitment required to manage the property myself?
- How will I gain the necessary knowledge for managing tenants (how to write a contract; what to do with non-paying renters; how to evict someone)?
- Is my family prepared for the implications of adding an investment property into the mix of our daily lives?
Do Your Due Diligence
Asking yourself the above questions will help you do your due diligence. They will prompt other questions and will yield valuable information to ensure you enter the investment world as informed as possible.
Add a Property Management Company to Your Investment Team
A property management company will take much of the work off your plate and mitigate the impact of the investment property on your life. A property management company will market/advertise the property, screen tenants, place quality tenants in the house or unit, handle communications with the tenant (including off-hours emergency repair calls), get rid of non-paying renters, and get the place cleaned up and ready for new occupants.
A good property management company can remove most of the work and stress related to keeping the property rented and generating income.
In summary, rental properties can be a great income-generation source for some people. Make sure you’re one of those people by understanding the implications of owning an investment property and by hiring a property management company if you don’t want to deal with the work and stress of tenant management.
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