What You Need to Know Before Investing in Your First Rental Property. Everyone needs somewhere to live, right? For many, renting is the best option, at least for a time. Real estate is often considered a smart way to invest and build wealth. If you intend to invest in a rental property, there are some things you should know before you get started.
Getting a Mortgage
When you bought your home, you probably did so with a mortgage. You had to get approved, may or may not have had to make a down payment, and then started paying it off. When it comes to getting a mortgage for a rental property, there are some similarities, but they aren’t the same. You’ll generally need to have a 15%–25% down payment ready if you aren’t living in the property. You’ll also be expected to have a solid credit score and financial history, more so than you would for your home.
Managing the Property
There is a lot that goes into managing a rental property. You’ll need to draw up leases, find tenants, collect rent, and handle maintenance and repairs, just to name a few responsibilities. That may not seem too bad, especially if you only have one or two properties you’re handling to start. That said, the more properties you’re trying to manage, the harder it becomes to keep on top of everything in addition to whatever else you have going on in your life. Hiring someone with property management skills can take some pressure off managing a multifamily property.
As a landlord, you are liable for keeping the property in a livable condition. That means it needs to be kept reasonably safe to live in, clean, and with properly functioning utilities. While specific laws vary from state to state, it’s even possible to be held liable if one of your tenants has a dog who bites someone. Make sure you clearly understand the laws governing where you live so you can afford yourself as much liability protection as possible. While you’re at it, make sure you have landlord liability insurance so you’re covered if something goes wrong.
Becoming a landlord is a pretty big responsibility and is more involved than just owning a property and collecting rent on it. You’ll probably need to get a mortgage, which is different from the one you’d get for your own first home. Then there’s property management and your liability as a landlord to figure out. Make no mistake—investing in rental properties is a viable way to build wealth, but it comes with a lot of work. We hope you found our tips useful on What You Need to Know Before Investing in Your First Rental Property.
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