There are many ways to be a landlord these days.
you might rent out residential or commercial properties.
you could do long-term, short-term or vacation leasing.
There are agencies you could hire to manage your property, or you could do it all yourself.
The housing market is cooling down a little as mortgage rates rise.
To put it plainly, owning rental property is having a small business.
The IRS defines rent payments as passive income.
In reality, the whole endeavor requires activity in preparing, purchasing, repairing and maintaining rental property.
All About Financing
Understanding the money part is both the best and worst part of the process.
Probably not as good as youd like.
It always seems like an uphill battle to build (and keep) a decent amount in savings.
But what if your car breaks down, or you have a sudden medical bill?
Ask one of these companies to help… Dont be shy to rely on friends for advice, either.
Find out who you know who owns investment property.
They could be a great asset to help you avoid common or even less known pitfalls.
And if you have a financial planner, get them in on the conversation as well.
There are other financial considerations beyond the mortgage, but that is the biggest one.
Lenders also may require 15-25% down payment.
Hows your credit score?That plays a part, too.
Non-owner occupied properties usually require a credit score of 620 or higher.
How much can you afford to borrow?Many websites have simple mortgage calculators, like this one onZillow.
Be honest, and dont choose the best case scenario.
Remember that there will be costs beyond the mortgage when owning investment property.
You will also need to calculate expenses for when the rental property is empty.
A standard rule is to put aside 1% of the propertys value for maintenance and repairs.
Put all these numbers together, and then work on getting pre-approved for your loan.
You may be able to use a home equity line of credit, but that comes withsome risks.
Lean Into Help for the First Time Buyer
You dont have to navigate all of this alone.
A good mortgage broker can guide you through a multitude of decisions.
Buying commercial or investment property goes more smoothly if you use an experienced investment propertyrealtor.
They will give you a somewhat optimistic but pretty accurate estimation of your costs of doing business.
They also can help you with the pros and cons of different locations and properties.
Finding the Property
when you obtain a good idea of the financial picture, the fun starts.
If you havent already, find a real estate agent who specializes in investment properties.
By now you hopefully have chatted with friends who own a rental property.
See if they have any recommendations.
What Make a Good Agent?
Real estate companies often have agents who specialize in different areas.
When speaking with them, ask for examples of rental property sales theyve completed.
Also find out their knowledge of the local area.
Do they specialize in a certain part of town?
Specific types of properties?
You want to ensure their experience expands the search, not limits it.
There is a social media site specific to real estate agents calledActiveRain.
The posts on it are chock full of excellent information, and it might be a great resource.
You also want someone who can accurately assess the resale prospects of properties and areas.
It would be fantastic if the agent is aware of properties that arent even on the market yet.
Another good question for a real estate agent is whether they themselves own or manage any investment properties.
A note on commission: Generally the agent takes their commission from the sale amount.
The listing and buying agent might split the total commission.
The sale price would be set understanding that this money would be deducted.
Well known real estate websites areZillow,Trulia,Realtor.com, andFBSO.com.
There are investment properties on all of these sites.
Should You Look at Foreclosures?
The pros are basically price-related: Foreclosures sell for less than their market value.
That gives a better ROI and makes financing a bit easier.
The cons of buying foreclosed properties are centered around time.
Sellers of foreclosed properties dont always have the same disclosure obligations in regular real estate sales.
It might take longer to close, and the property will likely need a lot more repairs.
After the Deal
You have the property, youve made the offer and its been accepted.
While your agent does their part, there are tasks for you, too.
You will want to look at applicable state and federal laws governing rental properties.
You might also want to get landlord insurance.
Decide if you want to handle finding tenants or use a property management company.
Many property management companies offer a range of services.
Understand what contracts, background checks, and vendors you want to use.
Tell everyone you know that you have a property!
Now Youre a Landlord
Congratulations!
There are always a few more decisions to make, but youve done the hardest part.
If you decide to manage your property yourself, there are several versions offree property management software.
It never hurts to introduce yourself to the new neighbors.
Start working on your investment, keep good records, and dont be afraid to ask for help.
The Penny Hoarder contributor JoEllen Schilke writes on lifestyle and culture topics.
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