Are You Ready To Become A Landlord?
By JD Esajian on March 17, 2014
The idea of having someone else pay down your mortgage or provide you with positive cash flow every month is a very appealing one. That being said, the role of a landlord is not for everyone. The thought of going to your mailbox every month and getting a rent check is nice, but there is much more to it than that. You need to have a grasp on the local rental market, the actual property and your personal skills and characteristics. If you are looking to buy a property with the intention of renting it, there are a few things you have to do beforehand.
The first thing you need to do is research the market. Looking at just one or two area properties will not give you the full picture of what your property could rent for. You need to look at as many homes that are available to rent and compare them to yours. Does your property have as many or more bedrooms? What would make someone pick your property over the house a mile down the road? You could look at past rent numbers to give you some idea at what your property could go for, but past numbers are just that. You need to look at the current market and make a realistic estimate as to what your rent would be.
After you determine of the area and the numbers work, you need to look at specific town codes and rules. Does the neighborhood even allow rentals? In some areas located near colleges or universities you need to pass specific guidelines for your property to be eligible to rent. If you do not get this approval, the amount you can rent for can be severely limited or it will cost you money to bring the property up to code.
Where most would be landlords go wrong is with breaking down the numbers. There is more that goes into the costs of a property besides just the mortgage payment and insurance. Snow removal, lawn care, water & sewer bills and seasonal maintenance are just a few of the more overlooked items. Individually these will not break the bank, but added up they can equal a hundred or more dollars a month. This is not including a reserve fund in which you will need to have in the event the dishwasher, furnace or refrigerator breaks. Before you look at any property, you need to break down exactly what the holding costs are and only then should you make your decision.
The final item you need to evaluate is what you would do in the event something breaks or goes wrong with the property. Even if you are handy and can do most of the work, are you in a position to leave your job and go to the house in short notice? If you are not the handy type, do you have someone that can do the work needed? If so, are you factoring this into your budget? These costs can be as relatively inexpensive as changing the locks or as expensive as replacing the a toilet. Either way, work will need to be done at some point and has to be accounted for.
There is a lot that goes into the process of renting out a property. Before you start looking, make sure you are in the right area and have all the numbers worked out.