While rental property can be an amazing passive income stream, it isn't something to be used lightly and needs a good deal of consideration. Before investing in a home, it is necessary to perform your homework and make the decision with your eyes open. There's a large number of aspects to think about - here, I outline six things each first-time purchaser should consider before becoming a landlord with your first rental property.
Can I afford it?
The property that you select needs to fit in your allowance after all the monthly costs of owning and keeping your home are considered. Things to think about include:
Care and upkeep
Is there room for growth?
It can take a while for equity to build, therefore buying property should ideally be regarded as a medium to long-term investment. A lot can happen over five decades, so attempt to obtain a home that will accommodate the probable changes. For example, your job may relocate to a far away place. It won't be an exact science and there isn't any crystal ball for it, but consider the possible life changes and how they might impact how you manage your rental property.
For anyone doing remote management of their property, you’ll want to look at a few options:
Using a maintenance service like Latchel to take tenant calls, troubleshoot maintenance, and send contractors for fixes when needed. (Runs between $10-$30/home/month)
Renting to a friend or family member that will care for the home as if it were their own. (Cost? Maybe a rent discount?)
Using a property management company. (Runs between 8-10% of rent/month.)
Will the investment value appreciate?
Buying brick and mortar is an investment, so it makes sense to make certain that the home you choose has the potential for growth in value. Location is the single biggest influence on a home's appreciation potential, so buy from the best area you may afford. Start with researching the prices of properties from the areas in which you are interested to make sure you obtain a property at what's deemed a reasonable market price.
Is the house in good shape?
As a first time buyer, your rental might not possess an array of luxury features, but you want to make sure all the fundamentals come in good condition. Have the property inspected by an experienced surveyor to ensure that there are no hidden flaws which may possibly be costly to repair. On average a home-buyer report will cost around $400, however it is well worthwhile to keep you away from investing in a home in need of costly repairs.
What is going to have to be repaired or replaced?
Everything has a lifetime and may require repairs at a certain stage, therefore look at the status of features such as the roof and floors. How long is it until all these pieces of your rental home have to be corrected? Again, this really is where the help of an expert surveyor or builder will be convenient. Recognizing the anticipated remaining life on large-ticket items can help you plan for potential future expenses.
So what do I compromise on?
Your first rental property may not be in perfect condition, however it's essential that it is the perfect investment for you personally. The must haves will be the features that you can not compromise on like price, location, and age, while all other aspects may not be mandatory. You may compromise on a duplex in favor of a single family home if the price is right.