By Lois A. Vitt, Ph.D.
Reasons for investing in rental housing include opportunities to make a profit, tax advantages to write-off mortgages and income from rents. So why not make the decision to buy more than one home—perhaps two, three, or even more?
If you have what it takes to invest in and manage rental homes, you can reap many potential rewards. But do not enter the rental housing market expecting to get rich quick, or believing you will have an easy time of it all. Expect equity to build over the long haul. Owning rentals take the same effort, and involve all of the ups and downs of any well-run business.
Here are some suggestions from the experts:
- When beginning your search for rental housing, check classified ads on the web and interview Realtors ®. Spend time looking at many different properties to find the locations and price ranges that you can handle comfortably. Drive through and scout neighborhoods that interest you and keep your eyes open for sale signs.
- Find a buyer broker to scout properties for you. Ask what rental properties they have listed, or know of that are not yet listed. Learn the values of comparable properties in every neighborhood that interests you.
- Take your time to research what you can and cannot afford. Estimate operational costs for each property, including mortgage and interest payments, taxes, insurance, maintenance and repair costs, and the price of water, garbage, and other utilities. Learn what the local customs are about paying for utilities. In some areas, landlords pay for certain utilities. In other areas they do not.
- When estimating value of potential rental housing, learn the tax assessment, lot size, zoning, subdivision requirements, special assessments, homeowner associations, easements and any other information you can about a property that interests you.
- Verify that the market rental for the particular property you are investigating will cover your expenses and financing costs. Also think about how you will finance, fix up, maintain and manage the housing. Set up a cash reserve in case of emergencies or have some other plan for those times when you may have less income to depend on.
- If you end up with vacancies, how long will you have enough to pay for expenses until new tenants move in?
- When you visit properties bring a notebook to take notes and a camera to take pictures of the inside, outside, yard and surrounding neighborhood. The pictures and information will refresh your memory later. After all, you could end up looking at dozens of properties.
- What condition is the property in? Does it need painting? What is the remaining life of the roof, the heating system and appliances? How long ago were major improvements made?
- Pay attention to the size of the yard and to any landscaping you see in order to get an estimate on its maintenance costs.
What neighborhood factors could add or detract from the future value of the property and impact the amount of rent you will receive. What is the proximity to shopping, nature areas, industrial areas, or major roadways?
Your goal should be to own a low-to-mid cost rental property in a mid-to-high cost neighborhood so that your property will appreciate in value. As with the purchase of your primary home, you want to avoid property that will decline in value. Working with a sense of shared vision in the real estate investment arena should not be understated for a couple or a family. It is a source of both pleasure and potential profit.
About the Author
Lois A. Vitt is a housing expert and financial sociologist, and is the author of “10 Secrets to Successful Home Buying and Selling”, the first book to demystify the psychological forces behind our housing decisions. To learn more about Lois and this book, visit www.RealtyStudies.com.