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Property Advice – Ten Tips on Buying Rental Property

Written by Posted On Sunday, 31 December 2017 02:51
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In the era of Donald Trump and a new tax code just around the corner, is it time for you to invest in real estate? Real estate has created some of the world’s wealthy people including The Donald, so there is ample reason to think that property is a good idea. But as with any investment, you should do your homework first before committing yourself to the size of a chunk of capital you need to go this route. Miller & Company LLP, a CPA firm in New York, reminds us that our capital should work for us, not against us. Wise words.

So, before you buy, check these ten factors first:

1. Ensure this is the way you want to spend your time

Are you handy with tools? Can you repair drywall? What about stopping a leak or unclogging a toilet? You can call professionals to do these things, or you can do them yourself and save all that money. Your first property is going to take up lot of your time as you learn the ropes of being a landlord. It’s another part-time job. Do you have the time and patience for this?

2. Eliminate other debt first

Investors may carry debt as part of their investment strategy, but the normal people should avoid debt. If you have student loans, medical bills or children about to go to college, starting a rental property may not be the right thing just now.

3. Can you afford the down payment?

With investment properties, you usually need a larger down payment than owner-occupied properties. They have more stringent approval requirements. You will need at least 20 percent, since mortgage insurance isn’t available on rental properties.

4. Watch out for higher interest rates.

The interest rate on an investment property will be higher than traditional mortgage interest rates.

5. Analyze your margins.

You should set a goal of 10 percent as your margin. Maintenance costs will average 1 percent of the property value annually. Other costs include insurance, possible HOA fees, property taxes and monthly expenses such as pest control and landscaping.

6. Don’t get a fixer-upper for your first property.

Unless you’re skilled at large-scale home improvements, you will likely to pay too much to renovate. Instead, look for a home that is priced below the market and that needs only minor repairs.

7. Figure your operating expenses.

Your operating expenses will be between 35 percent and 80 percent of your gross operating income.

8. Calculate your return.

For every dollar you invest, what is your return on that dollar? A 6 percent return in your first year is considered healthy, especially given that number should rise over time.

9. Start low.

The more expensive the home, the higher your ongoing expenses. Experts recommend starting with a $150,000 home.

10. Location, location, location

Look for low property taxes, a decent school district, a neighborhood with low crime rates, an area with a growing job market and amenities like parks, malls, restaurants and movie theaters.

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Narendra Sharma

Naren is an interior designer and real estate expert. I’m grateful everyday to my wonderful clients who have entrusted me with their homes.

www.amarillorealestateguide.com/

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