Consider the Tax Advantages
Owning a rental property whose rentals truly cover out of pocket costs still affords you a potential profit from tax breaks and any appreciation. The tax advantages of owning a rental property may include:*
- Maintenance and repairs
- Other expenses
- Losses (within specified limits)
* For illustration purposes only; consult your tax advisor for specific tax advantages.
Shop for Financing
Financing a rental property is typically more costly than for your primary residence, so it pays to shop around. Lenders typically require down payments ranging from 20% to as much as 40%, and rates may range from one to two points higher than for an owner-occupied home. Lenders usually consider a percentage of the total current rental income when calculating how much they’re willing to lend; if you’re buying a vacant property, you must qualify for financing without factoring in rental income.
Some alternatives to traditional lenders include lenders who specialize in financing rental properties and owner financing from the seller of the property. If you plan to purchase a multi-unit dwelling and plan to occupy one of the units, you may qualify for more favorable terms on your financing.
Regardless of the financing you choose, be sure to retain sufficient cash reserves or available line of credit to cover contingencies such as repairs and vacancies.
Shop for Tenants
This is serious advice; choose your tenants every bit as carefully as you chose your rental property. Delayed payments, non-payment and eviction proceedings will take a toll on your return, your peace of mind and on your good tenants.
When considering prospective tenants, ask questions, verify all references, and run a credit check and a search for previous evictions and other evidence of legal troubles. Follow up with the current and previous landlords, but do not take glowing recommendations from a current landlord (particularly within the immediate area) at face value.
As an additional check, put the Internet to work for you and ensure that all phone numbers listed by prospective tenants match the directory listings.
To succeed as a landlord, you must also educate yourself when it comes to applicable landlord-tenant laws and regulations. Seek the advice of a professional when it comes to drawing up rental agreements and at the first sign of a dispute with a tenant; it’s excellent insurance for avoiding a lengthy and much more expensive headache in the future.
In Summary: The Keys to Rental Success
Do your homework, seek sound advice from a real estate professional, select the right rental property at the right price, choose tenants carefully, plan to be in it for the long term, and you’re likely to find that all your hard work will produce a very satisfying result. Who knows, it may even set you off on a whole new career!