Are you considering becoming a landlord? Perhaps you are looking to diversify your portfolio or start a retirement plan. Rental properties might be part of your plan. Often people make the decision to move to another home and rent the one they currently own, instead of selling it. What are some important considerations to factor into your decision making process? As the broker/owner of RE/MAX Capital, I have collected a few tips for those considering owning rental property.
I cannot emphasize enough the value of having a solid tenant in place. It is more valuable to take less rent from a tenant you believe with near certainty will take care of your property and pay rent timely, than to sign a lease for more with a tenant you have concerns about. While the monthly rent amount is critical, the difference of $100 a month in rent is very small compared to the havoc that can be caused by a non paying tenant or one who does not care for your home.
Expect to make repairs. Expect to spend money making repairs. Plan to spend money. You must have a reserve fund set aside for this reason. If you are relying on the rent for other bills, then the rent will not be a suitable funding source for repairs. How much money is enough to have set aside for repairs? Look over your personal maintenance records to help calculate a figure. How old is the house? What systems are older and likely to need repair or replacement?
Add a few months of rent to that reserve fund. How many months of reserve mortgage payments do you have? The worst case scenario is the tenant stops paying and you have to perform an eviction. On top of repairs, you may have to carry a mortgage for 6 months without rental income. So be prepared for the worst and hope it never happens.
Don't be too rigid. As a landlord you re in the people business. People have lives and real world problems such as illness, death, loss of job, etc. If you develop a positive relationship with a tenant, you can be firm and kind in the face of their adversity. Being flexible does not mean being weak. I have seen landlords make the wrong decisions for fear of appearing weak.
Should you hire a property manager? You will need to account for your location--is it near or remote? Do you have ability to locate a tenant, a respected screening process, the time to handle issues at a moments notice, the resources to have problems solved, and the interest level? Depending how you feel about those questions, you may or may not want to hire a property manager.
Owning rental property is a fantastic way to preserve and create wealth. However, it does come with risk. If you would like more information from a seasoned property manager, please do not hesitate to contact my office.
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