Buying and holding real estate as investment rental property is considered to be a very good method for achieving one’s financial goals. As with everything else in business, there are pro’s and con’s to consider. The difficulties that come with owning rental properties can be minimized by considering the following guidelines in preparation for investing.
First, always make sure that your expectations regarding investing in rental property are reasonable and realistic. You should always approach your property investment with the goal of achieving a positive cash flow. While you may manage to see a positive cash flow on property obtained through a real estate auction or through the conventional market, do not expect that your new purchase will finance a new vacation home within a year.
Second, it is important to make sure that you take the time to do your research and ensure that you understand the rules and regulations regarding your responsibilities as a landlord. As the owner of rental property, you must abide by certain federal and state laws which provide specific information regarding your liabilities and responsibilities.
Along those same lines, it is a good idea to be sure that any lease or rental agreements you handle are absolutely legal. If you handle a lease or rental agreement which is not legal, you may experience a number of problems if your tenant happens to violate terms of the lease. To be safe, it is best to have an attorney draft your lease and rental agreements.
Before purchasing any rental property, it’s best to have the property inspected in order to try to avoid facing any expenses you did not anticipate. Having the property inspected by a professional before you sign on the dotted line will involve an expense; however, compared to the expenses you could face by purchasing a property without an inspection, it is certainly well worth it.
When you begin the process of renting out your property, take the time to run credit checks and call references. These are both steps which many novice landlords often overlook in their rush to fill their rental properties and begin turning a profit; however, it can be detrimental. Remember that having an empty unit is always better than rushing and having an irresponsible tenant who may destroy your property, get behind on their rent and ultimately prove difficult to evict.
Joining the Landlords’ Association in your local area can also prove to be helpful by putting you in connection with experienced investors in residential and commercial property. You can also gain access to reliable contractors, inspectors and other professionals who can make the process of operating rental property much easier.
It is also imperative that you make sure you have adequate property insurance as well as liability insurance. Property insurance will help to protect your investment while liability insurance will protect you in the event anything should happen to someone while on your property.
Finally, make sure you have resources that are quickly availabe to cover expenses which may crop up unexpectedly. Remember that you are operating a business and as such you must be prepared for those times when expenses arise. The exact amount that you wish to have in your reserve account is ultimately up to you; however, it should be sufficient to cover typical expenses that may arise. The general rule of thumb is to put aside 20% of the value of your property. To make the process of establishing an emergency fund easier, consider setting aside a certain amount of your rental receipts each month into this special account.
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