Buying an investment property is often seen as a quick and easy way to bring in some extra money. However, while the profits from a rental property can be fantastic, it’s not without hard work. Before you sign on the dotted line to purchase a secondary property to lease, here are a few things you should be aware of.
Your Taxes Can Skyrocket
Regardless of the market when you purchase your investment property, there is always the possibility of change. Often, a change can happen seemingly overnight, and can leave you with less profit, if any at all. The key to ensuring your investment property doesn’t take a nosedive in the profit margins is to base the rental agreement price on the possibility of a surge in taxes. While keeping the price reasonable, do a little research into market trends and adjust accordingly before posting any prices and/or inclusions in the rent.
Renters Can Cause More Damage Than You Think
The idea of an investment property appeals to most as an easy way to make some extra money. However, even after a tenant is found, you’re never really prepared for what may happen to your rental property. Believe it or not, most landlords have endured or have learned that renters can do more damage to their property than they imagined they ever would when they first agreed to lease to them. Possibly because the rental unit isn’t theirs to worry about, some renters take poor care of rented properties, leaving the landlord with a deteriorated home to deal with after they’ve vacated. Even with a security deposit, damages done by renters can take a huge chunk out of a landlord’s wallet and their profits.
In the same breath, good tenants are worth their weight in gold! Once you’ve found a trustworthy, reliable, respectful tenant, do what it takes to keep them. If you have to negotiate a lease a little bit for their second rental term, it’s probably a wise choice. To ensure your property remains respected and cared for, a little leeway with a good tenant will save you time, money and grief in the long run.
Repairs Will Happen, No Matter The Tenant
No matter how wonderful a tenant may be, repairs and maintenance will happen. It comes with the territory, and they usually aren’t cheap. While you can dip into your overage to help pay for things such as air conditioners, furnaces, plumbing and other big ticket repairs, you may still have to pull some cash out of your own pocket. Before you decide on rental rates, be sure you’re clearing enough profit and stashing enough away for when crisis strikes and big time repair jobs need to be done. If you’re not a Mr.Fix-It you might want to set aside a little more than you think you would need for repairs and upkeep.
Set The Rules & Stick To Them
Don’t be afraid to set some boundaries and rules, and make sure you stick to them. Things like no pets, no smoking, rent paid on time, etc. are rules that you should confidently enforce. Despite it being a tenant’s home, this is your investment. This property is yours to own, and in the end, the preservation of it directly affects the outcome of your profit and you should be firm with your stipulations. In a sense, this investment property is your business after all.
It’s Not For Everyone
Becoming a landlord of your own rental property is tough work. It can mean long hours, daunting tasks and prove to be more strife than it’s worth. To be honest, it’s not for everyone, and that’s okay. However, I do suggest that before you dump your savings into an investment property you do a little homework to see if it’s right for you. Again, the role of landlord isn’t the best fit for everyone, and the last thing you want to do is learn that the hard way!
Buying an investment property can be tempting and scary. It’s a great way to gain some extra cash flow, as long as you’re willing to log the man hours. If you have any questions about purchasing an investment property or would like to know which mortgage would be best suited to your specific needs, feel free to give me a call! I am always happy to help you understand your financing options to get your plans in motion.