If the volatility of the stock market in recent months has you looking for more stable places to invest, you might be considering buying a property to rent out for the first time.
This can be a value-making decision, but you do have to be smart about this kind of project and manage the investment wisely over the years. Follow a few tips to help increase the likelihood that your time as a landlord will be successful.
Don’t Make It Personal
Firstly, treat your property investment as a business, rather than making the whole enterprise too personal. For instance, set up separate bank accounts for money to go in and out of for the property, and keep a close eye on every transaction. Be wary of outlaying more money on the property than you’re likely to get back, both when you buy and if you renovate. Keep receipts for every transaction related to the property, too. You’ll need these when completing your tax.
Also, avoid renting the home to family members or friends. If you go down this path, it can be tricky if they’re late with their rental payments or damage the property. Instead, select tenants you don’t know. Doing this reduces the risk of awkward situations and makes it easier to charge top dollar and optimize annual profits on the property.
While you hope everything runs smoothly over the years, you never know when you could have problems such as extensive damage occurring to the property (e.g., from a cyclone or electrical fault) or someone injuring themselves on site. It’s wise, then, to cover yourself with landlord insurance to minimize potential financial losses.
It also pays to invest in home warranty, such as the product available from American Home Shield. Home cover policies are service contracts that cover repair or replacement costs on key appliances and system components, even old ones. Furthermore, know all your rights and responsibilities as a landlord, so you always conduct investment property business legally and don’t open yourself up to any litigation issues or fines.
Select a Rental Agency You Can Trust
You can choose to handle the rental side of things yourself, but there’s a lot involved in this, so most people hire a specialist agency for management. If you go down this path, choose a reputable company you can trust, who will help you to make a profit from your investment. When selecting a firm, look for a business that knows the area well.
They should understand the market, and be clear on the ideal tenants to target and what price can be charged, with recommendations made about price rises as market conditions evolve. Rental agencies should be adept at creating proper paperwork and advertising properties effectively, too. They must carefully evaluate potential tenants and conduct adequate background and financial checks.
When talking to potential firms, ask who you’ll deal with at the company and how much experience they have. Also, ask about the reports you’ll receive, all potential fees (including costs for finding new tenants when others vacate), and how often they’ll inspect your property.
Use the Services of Knowledgeable Experts
Successful property investors know that they don’t know everything. They consult with experts in relevant fields for advice on matters relating to first purchasing a home for the rental market, and then leasing it out.
Use the services of consultants such as accountants, solicitors, and financial advisors on things such as purchase and rental contracts, setting up the best ownership structure for your property assets, and handling depreciation and expense claims when completing your annual tax.
Have Proper Agreements in Place
You might live by a code of honor and verbal agreements in your day to day life, but with investment properties, you must put all information into writing. You need a paper trail that covers you both legally and financially if anything goes wrong, as well as to prove ownership, rental income, and other records as years go by, just make sure you do a proper tenant screening every time you rent the property to a new person.
Read all of the details in the contract when you purchase your property and when you sign up with a rental agency. Also, read the fine print on the tenancy agreement drawn up for the people who live in your property.
It’s your responsibility to know and agree with all the information in these contracts, so don’t just trust that whatever you receive from a lawyer or agent is acceptable as is.
To maximize your investment dollars, be strategic when buying and renting a property. The work you put in upfront and overtime should pay off, though, and ensure you don’t regret your decision in the short or long terms.