The real estate market is thriving — and, for the first time in a long time, is even outperforming the stock market. With so many Americans renting and real estate prices soaring, now is a wonderful time to be a real estate investor or the owner of an income property. It may also be a good time to become an investor or owner if you aren’t one already.
But before you jump right into the exciting world of real estate ownership, there are some things that you should know. Here are some rental property basics for first-time owners and those considering getting into the game.
Why rental properties make sense
When you purchase a real estate property, you generally hope that the property in question will grow more valuable over time. In this sense, real estate properties aren’t really any different from other sorts of investments that you’d buy low and sell high.
But income properties, as the name suggests, have another perk — they generate income for their owners. They can still be sold, of course, but they are also sensible things to hold onto and use to generate passive income. In this way, rental properties are valuable in two different ways.
Should you buy a rental property?
The first question that any would-be real estate investor should ask him or herself is whether it makes sense to purchase a real estate property. While rental properties are certainly wise investments in a general sense, you must consider some key points.
For one thing, do you have the money? It’s important to remember that buying a rental property puts a lot of your financial eggs in one basket. You’ll want to make sure that you can not only afford to buy the property but can afford to keep it through tough economic times. You’ll need an emergency fund and a nest egg in a diverse portfolio of investments on top of the cash that you’ll need to buy the property.
You should also consider the time and money that you have to spend on being a landlord. Rental properties may generate “passive income,” but there’s nothing passive about the task of being a landlord. Landlords are responsible for all sorts of things, including repair and maintenance work on the property. You’ll need some time in your busy schedule and some cash for outsourcing jobs that you can’t or prefer not to handle on your own.
Finally, you need to consider the specific property. While the real estate market is thriving, not all rental properties are the same. First-time investors should remember to do extensive research on their specific rental market and plenty of due diligence on the building that they are buying. Don’t forget to consider zoning laws!
The help that you’ll need
You won’t succeed in the rental market on your own. You’ll need lots of help along the way from other professionals — and, if you’re smart, from software solutions, too!
You should work with an attorney to make sure that the acquisition of your rental property goes smoothly. Trust an attorney to help you set up your rental business as just that — a business. The right legal structure for your business will help insulate you from risks and losses that your rental business could encounter.
You’ll need to invest in landlord insurance and work with contractors or property management firms to make sure that your space is protected from things like burst pipes, electrical fires, and other disasters.
And, of course, you’ll need to rent your property out to a reliable tenant. That process will be a lot easier if you rely on landlord software solutions. The right software will make it easy to market your property online, accept online rental applications, perform a tenant credit check and background check, and approve the right tenant.
This isn’t an exhaustive list of things that first-time real estate investors should do, of course, but it will help you get started. With care and proper research, you’ll put your real estate business on firm footing.