The income your property produces each month, the increase in the appreciation value over time and certain tax advantages in your state (you can be tax-free if you do not receive the net cash flow after expenses are deducted) are all pretty good reasons to rent out your property. On the other hand, you may need to deal with liability, bad tenants, and unexpected expenses. Here’s how to make buying and renting a property successful.
Finding a good location
Research buy-to-rent hotspots. For example, Detroit has been called “an emerging market that happens to take dollars” and offers an excellent opportunity for investment. Investigate economic data in order to find out where employment is high. You can also include college towns in your search.
A report by the Center for American Progress investigated economic benefits of reducing crime and it indicated that a 10% reduction in homicides would lead to a 0.83% increase in housing values the following year. Go to the police and ask them about crime statistics in the neighborhood where you want to buy property, or research it online. Finally, public amenities attract renters, so make sure you research this aspect as well.
Changing ownership includes additional costs, like legal fees and valuation fees. It’s always wise to opt for good conveyancing services to save you both time and money. Consider a legal team you trust as legal experts who will do everything for you: they’ll help you complete and prepare any document legally required, and they will be in contact directly with the bank and can deal with other lawyers.
You should hire a general contractor before you make the purchase, as they will tell you whether the property is worth remodeling. Speak to your contractor if there is a possibility of turning underutilized space into a more practical one, like an expansion to the kitchen or a laundry room. Even the properties in good condition require some kind of renovation. Prepare your budget for paint, carpets, bathroom and kitchen renovations as well as lawn maintenance. Use places like Craigslist to find lightly used items, such as reconditioned appliances and leftover building materials you can repurpose.
Read through a Uniform Residential Landlord and Tenant Act, enacted in all states. Some states have statutory limits on security deposits and some do not. If there are limits, they are usually equivalent to one month’s rent. In most states, the deposit must be placed in a bank account, which is not a landlord’s account. The deadline for returning the deposit ranges from 14 days in Arizona, Hawaii, South Dakota, Vermont and Washington to 60 days in Kentucky. A landlord can evict a tenant after pay rent, or quit notices, cure, or quit notices and unconditional quit notices.
Protecting yourself against liability
First of all, get the right insurance before you start renting the property. Landlord liability insurance can protect you against tenant damage, or tenant guest damage, uninhabitability and tenant and tenant guest injury. Make the property physically sound by complying with the implied warranty of habitability. This means that the property is fit to live in and that you must maintain this condition during tenancy. Fix any tenants’ repair requests so that you can prevent any injuries you can be liable for.
Saving for an emergency
In the cases when you cannot find tenants, you should always have an emergency fund in order to survive long vacancies. First, understand how much money you spend each month. According to the U.S. Department of Labor statistics, the average monthly expenditure is $4,457. Start saving based on your expenditure on housing, transportation, food and health care, the categories you spend most your money on.
Buying rental property is an investment and can be a great way to supplement your income. However, you should take into consideration various aspects of renting in order to make the investment worth the money.