The Commonwealth Blog

Wednesday, April 10, 2019

Owning a Rental Property for the First Time

There are many things to consider before purchasing a rental property, including financials, location, and logistics. Before signing the deal on your new property, go over the following steps to ensure you make a worthwhile investment. 

Where Will You Buy?

You want your rental property to be occupied, so make sure it’s nestled in a city or town bustling with activity and tourists. Before purchasing, know the major employers and the area’s economic outlook. This ensures you don’t buy in a neighborhood that’s on the way out. By doing a deep dive into potential buying markets, you’ll have a better idea of which locations are most lucrative.

First-time buyers also benefit from buying in their own neighborhood because they already have a feel for the area, local attractions, and buyer behavior. If you don’t have to buy a destination rental property, make things easy on yourself by beginning your rental business in your own neck of the woods.

Think About Your Financial Future

Owning a rental property can be a great source of extra income if you’re thinking about your financial future. Make sure you’re not only taking into consideration your own personal preferences while investing in a property—save those desires for your own home. Figure out what you need to secure a nice rental property for temporary residents, and save the fancy flourishes for your own residence.

There are other important financial factors to consider too. HOA fees, taxes, repairs, property management fees, and utilities should all be considered to determine how much money you'll save. Determining the capitalization rate allows you to compare different deals you're considering. Be prepared by doing your financial research to save the big bucks.

Lastly, think about how the addition of a new mortgage will impact you. Investment properties commonly require at least 20% down, so make sure you have enough saved up to make payments alongside unreliable tenants, repairs, and other unforeseeable expenses.

Becoming a Landlord

Congratulations, you’ve purchased a rental property! Now, who’s going to manage it? Will you play the role of the landlord or hire a third party to do the work for you? Payments must be collected, repairs need to be made, and tenants might have to be evicted. Whoever takes over must be prepared to successfully complete these tasks.

With a bit of preparation and work, you’re well on your way to owning a rental property your guests love and that provides you with a bit of extra cash.

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