What traits such as cost, size, fuel economy and resale value did you consider before buying the car or truck you drive now? Chances are, the features you considered important and the weighting you put on one over the other would be different than my rankings, but that is why there are so many different types of cars and trucks. One of them fits you just right. The same is true with rental properties.
View the questions below not having right or wrong answers but as having right or wrong answers for you. I compiled this list in no particular order but they come from my experience in owning and managing rental properties. Good luck and keep me informed of your success!
1. What type of property do you want to own: a property that isn’t likely to appreciate but generates strong cash flow or a property that hopefully you can sell in the future for a profit but whose rents typically don’t even cover the mortgage payment?
2. How much cash do you have for a down payment and any necessary upgrades? Remember, most banks require larger down payments for rental investments than primary residences and they tend to charge higher interest rates as well, so be prepared.
3. How long can you survive financially if you didn’t have any rent coming in? If you have a problem tenant or if you are between tenants, how long can you go before you get desperate and make a decision that may not be the best long term because you need cash today. Always try to have reserves to cover for these issues.
4. Do you have the personality to deal with flaky tenants? Sometimes problems happen and you need to be able to deal with these problems. If that is not you, no problem. That is what property management firms are for. Just budget accordingly because they do need to be paid.
5. Do you have the time to show the property to prospective tenants? The more flexible you are showing the property, the more people can see it and the quicker you may find somebody to rent it to. On the other hand, if your job is restrictive or if travel is an issue than you it may take you longer to find a tenant since you can’t show it as often.
6. How far will you drive to change a light bulb? If the property is far from your house, than stopping by to check on the condition or make minor repairs will feel like a major hassle and you may be more willing to pay a professional to do something minor, such as an electrician to change a light bulb, because the thought of driving that far is not worth the hassle.
7. Are you handy? I am not handy at all so I allow provide myself a higher budget for repairs where other owners I know take care of them themselves. Don’t plan on saving money on a contractor if you don’t know the difference between a Phillips screwdriver and a Wilson Phillips record.
8. What will the neighborhood look like in ten years? Rental properties tend to be held for many years so try and imagine what the demographics will look like in 10-15-20 years. If you are not comfortable with that potential future, then look for another property.
9. What type of tenants would you want? Owning a property that is near a college lends itself to renting to college kids. College kids have different traits than office professionals. Also consider the number of room in the property. The more rooms, the more people the house can hold and past a certain number of rooms, you begin to see multiple families joining together to rent a house. Every type of tenant has their own strengths and weaknesses, but you should try to match your personality style with their style.
10. Where will you get your financing? Will it be a fixed term or adjustable term? How much do they need down? What credit score do they require?
11. How will you find prospective tenants? I have used Craigslist, curbside signs and realtors. Ask around other owners in your neighborhood on how they found their tenants.
12. Do you want your tenants to know where you live? My tenants mail their rent checks to my house so they know my address. One of my friends who also owns rental properties gives his tenants a PO Box to mail their rent checks to so they don’t know where he lives.
13. Who will manage the properties when you are on vacation? Either you need to leave a number on your voice mail for who your tenants can call for help while you are unavailable or you need to be able to reach somebody local to take care of problems if your tenants can call you while you are on vacation.
14. What are the realistic rents that the property or area could support? I made the mistake once of fixing up one of my rental houses too nice for the area. I tried to rent it for a number where I would make the money back that I put into the house, but past a certain rent amount, I found people would rather buy than rent or if they were renting would rent a bigger, nicer house.
15. How long do you plan on holding on the property? If your rents more than cover any mortgage and repairs, this is not a big issue, but if you find yourself “feeding the kitty” every month, you should already have a plan as to what price point you will sell the property for a profit and how much losses you will suffer before selling it and walking away.
16. Do you have a list of service professionals you can call for help? I have numbers for the following people: electricians, tile people, plumbers, painters, gardeners, carpet cleaners, property management, realtors and landlord legal help.
I am a small business owner who believes most Wall Street produced financial writings belong into one of two buckets: propaganda or painfully dull.
I am attempting to offer an alternative by creating short post I hope people can relate to and after reading will have a better understanding of finance.
Looking forward to hearing from you www.yourwealtheffect.com