The thought of purchasing rental property that will be used as a source of income sounds like a very attractive idea to some people. In fact, owning rental property can be very lucrative. Not only are you able to collect rent on a monthly basis, but you are also able to use the rent to pay off your mortgage little by little every month. Couple that with the likelihood that the value of your rental property will rise over the course of time – – and you’re sitting on a small fortune! In many cases, owning rental property can be a great investment. But owning rental property and being a landlord is not always easy, and it comes with a significant level of responsibility.
Following are a few facts to consider before investing in rental property:
Don’t buy just anything you can get your hands on. Think of it this way… When you’re playing Monopoly, there are a few properties that are incredibly inexpensive to purchase, and there are others that are outrageously priced. The rent charged on the cheapest property on the board is $2. Is all of the work you must put into being a landlord worth $2?
You don’t have to purchase the most expensive piece of property in the neighborhood either, but make sure the rental property you do purchase is relatively desirable, in a decent area, and in good shape.
Remember that your rental property will need maintenance. It’s important to remember that things go wrong inside of every home – no matter who is living there. As a landlord, you will be responsible for fixing broken furnaces and clogged toilets. Repairs cost time and money – so be sure you’re willing to take on these responsibilities (or be able to hire someone to do it for you).
Realize that not all tenants will pay their rent on time. No matter how many background and credit checks you perform on prospective tenants, you will undoubtedly come across one or two that seem reliable at first, but who ultimately do not pay their rent. You may have to evict renters who cannot pay.
Prepare for higher mortgage interest rates on rental properties: Mortgage lenders typically charge higher interest rates for rental properties than they do for a person’s primary residence. This is true for any type of investment property. Additionally, you will probably have to put a greater percentage down on a rental property than on a primary residence. Many people do not realize that financing requirements are different for rental properties versus primary residences, and therefore they do not plan ahead for these extra mortgage-related expenses.
Owning rental property can be a great way to earn income. With mortgage interest rates still at historically low levels, now may be a good time to invest in this type of venture if you have the information and resources needed for this type of investment.