If you are thinking about purchasing a rental property, it is important to ponder all of the variables involved in such an investment. A property owner should be aware of the potential difficulties associated with managing a rental property.
What you need to know before buying a rental property
Do you have the time/skills to manage a rental property?
While there is no doubt that rental properties can generate considerable income for their owners, there is also a lot of work involved in their management. Are you prepared to fix broken appliances and leaking roofs? Do you have an accounting system in place for collecting rent? Have you consulted an attorney to ensure that your rental forms are legal? Are you comfortable running background and credit checks on prospective tenants? If you are not prepared to handle these and many other tasks you must make an assessment about whether you want to pay fees to a property management company.
Renters might damage the property
Are you prepared to pay for repairing damage done to your property? Though every prospective renter seems friendly when applying for the unit, their true colors will show over time. If a tenant proves to be a drug addict or an individual with anger management issues, there is a chance he will damage the property. It is awfully difficult to recover the full cost of damages to rental properties, though you can withhold the return of the deposit which may cover some or most of the cost to repair the damage.
Visit your property from time to time to make sure it is being cared for. Don’t fret about making tenants feel uncomfortable; give them ample notice before you show up and there shouldn’t be a problem.
One of the hidden costs of rental properties is the property tax bill. It is easy to lose sight of the fact that you will have to pay a significant amount of money in property taxes. When assessing your gross income you will need to account for the property taxes that will be subtracted from it. Even if your state offers a homeowner’s exemption on a primary residence, it is not likely to apply to properties you do not live in and are using to generate income. Also, consider that property tax caps for rentals are higher than the typical primary residence and homesteads. Perform an estimation of property tax costs and adjust the rent to factor in the taxes before listing the units.
The challenge of finding good tenants
It is difficult to find reliable tenants who are willing to stay at the property for the entire length of a lease or longer. Once you run background, employment and credit checks on applicants you might find few meet your criteria. If you find qualified tenants treat them with respect and handle their maintenance issues as quickly as possible!
Will you be able to follow-through on rent collection?
If you are a pushover in any sense of the word, buying a rental property might not suit you. A tenant who is late with his rent (outside a grace period) should be charged a late fee without exception. If you feel uncomfortable holding a tenant to the promises he signed in the lease, you will be taken advantage of. Every landlord has to put his foot down from time to time and even evict tenants in worst case scenarios. Do not lose sight of the fact that your rental property purchase is an investment that should provide a solid rate of return. In the end, you are a businessman with a focus on making money.
Son-Rise Property Management has been serving the property management needs of Bellingham and Whatcom County since 1996. Contact us today to see how we can help you find a rental property for your family or manage your rental properties.