Investment properties are investments in more ways than one. While you can realize significant income over time, you also will be making personal investments of time and money.
Consider the following tips:
Know the going rates. Research what types of properties are available in the area and what the rental rates are.
Understand full cost of ownership. When considering the income from rent, think about the expenses. The mortgage loan is only one of the expenses. Additional expenses may include taxes, insurance, license fees, utilities and upkeep (like paying a property manager or someone to mow the lawn and shovel sidewalks). Plus, you’ll have to factor in out-of-pocket expenses during vacancies. If nobody is there to pay the rent, you are responsible for the rent.
Know your personal finances. Your total debt payments, including all mortgages, cannot exceed 36% of your gross income.
Learn about tax implications. Typically, interest on a second home mortgage is tax deductible. You will qualify for additional tax benefits on a rental as well. Talk to a trusted tax advisor.
Read up on your rights and responsibilities as a landlord. Learn about local licensing and ordinances, rental agreements, the eviction process, and rights and responsibilities of landlords and tenants.
Identify contractors. You’ll want to have a go-to list of reputable plumbers, electricians, and other service providers for general maintenance and emergencies.
Screen tenants. Protect your investment. Create your process for screening tenants. Plan to run credit checks on all potential tenants. You’ll also want to call current and previous landlord references and find out about timely rent payments, as well as how tenants treated a property.
If an investment property is in your future, give us a call. We can talk about financing options that help you meet your goals.