With mortgage rates remaining at all-time lows, many experts note that buying homes to rent can be a smart investment. But becoming a successful landlord involves more than meets the eye. If you are considering the idea, here are some important tips, offered by Fox News:
1. Carefully Choose the Location
The right location can mean the difference between a home that sits unrented for weeks at a time or one that is forever in demand. Neighborhoods near universities provide an attractive option, as they offer a constant supply of college students seeking housing. Homes in areas near good schools are also solid prospects that draw families. Finally, many experts suggest buying rental property in an area that features moderately priced homes, rather than a high-end neighborhood. “I would rather have a middle-of-the-road rental that stays rented than a higher-end (property),” landlord Claire Thomas told Fox News.
2. Consider Cost/Profit Potential
Fox News reminds investors that residential real estate provides three ways to get a return on your investment: “when it’s sold, assuming it has grown in value, by collecting rent (that pays down the mortgage) and through tax savings, such as the mortgage interest deduction.” Be sure to do the research and math to determine if you can be profitable.
Also, if you’re planning to keep the property long-term, it’s important to make provisions for periodic expenses, such as exterior paint, large tree trimming, and roof and appliance replacement. Putting aside 10-15% of monthly rent into a long-term maintenance account is prudent.
You will also want to plan for the possibility of vacancy during times of turnover. One option is to calculate your rental income on 11, rather than 12 months, to be on the conservative side. To avoid vacancy issues, research rental rates to ensure the rent you charge is appropriate for the market and maintain your property so that it shows better than the competition.
3. Investigate a Management Firm
Do you have the time and energy to select tenants and take care of the property? If not, you might need a firm that offers such services. Take note that property management firms often charge a percentage of the rent, which can amount to 10 percent or more.
4. Screen Tenants
It’s critical to take care in choosing tenants who will respect your property and pay their rent on time. Ask for previous landlord references; run a credit and criminal records check, and ask for a deposit of one month’s rent (more if the tenant has pets).
5. Be Aware of the Law
Many laws cover your responsibilities as a landlord. Check out the U.S. Department of Housing and Urban Development’s website (www.hud.gov.) and The Landlord Protection Agency (www.thelpa.com) for rules specific to your state as well as standardized forms for rental agreements.
The Denver rental market is hot. And with interest rates so low, now is a great time to make a rental investment.
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