So, you’re interested in an investment property. It seems like a simple exchange – purchase a property, put it up for rent, and reap the potential profits. This may be true, but it can also come with many unexpected responsibilities and costs.
Before you commit to buying your first property, make sure you consider the following:
- Condition of the property – When looking at an investment property, it’s important to have it thoroughly inspected by a qualified professional. Consider how much time and money it will take to make the property a safe and pleasant place for your tenants. It’s okay to buy a fixer-upper, but if your house needs to be vacant for renovations then it may not be worth it. Make sure all serious issues are fixed so that your tenants will be healthy and safe.
- Location – The location of the rental residence is just as important as the property itself. Choose a location close to major employers, transportation and where tenants will feel safe. If you’re looking to rent to families, be sure to consider the school district. Make sure crime rates in the area are not too high and that the location is prepared for potential natural disasters.
- Property taxes – Always consider the amount of property taxes you’ll be responsible for when buying an investment property. While it’s important to find an investment property in a nice neighborhood, high property taxes may make a great property a poor investment choice.
- Insurance costs – Just like property taxes, insurance costs can affect the profit you can make on your investment. Think about what kind of coverage you will want on your rental property. High insurance premiums are often due to the property’s vulnerability to natural disaster.
- Property management – As a landlord, you’ll have to decide if you want to maintain the property yourself or hire a property management company. It’s important to consider how much interaction you want with your tenants and how much you want to be involved with day-to-day management. As issues come up, someone will need to be responsible for addressing them.
- Unexpected costs – Be prepared to pay for unexpected costs associated with owning a rental property. Create a budget for unexpected repairs, potential replacement of fixtures, and other potential maintenance costs. Doing a bit of forecasting will save you a lot of potential frustration.