Information on Rental Properties

Collecting rent is a source of income, but consider the expenses as well.

Rental properties are potential sources of income for real estate investors. If you decide to purchase a rental property, educate yourself on the pros and cons of ownership. Collecting the rent is only a mere fraction of what a landlord needs to consider before putting up the “For Rent” sign.

Investment Potential

Investors purchase rental properties to make money on the assets and collect income from the rent. When hunting for a rental property, educate yourself on the comparables in the area. Comparables are similar properties that have sold in the area. They provide a gauge for the asset’s value, according to Total Real Estate Solutions. Finding an undervalued property that has superior rent potential is the ideal situation. Check your local area for the going rents on related property.

Remodeling Issues

If the rental property needs remodeling before a renter occupies the premises, underestimating the costs of repair can be problematic. A mistake in the remodeling budget potentially hurts profitability and refinancing. Initially, a repair estimate can give a good idea of the project’s scope. However, depending on the unit’s condition, the full spectrum of repairs needed is sometimes not discovered until the job begins. Hire a trusted contractor and review the contractor’s past workmanship, according to the Home Addition Plus website. Poor workmanship only causes headaches and takes more money out of your pocket.

Expenses

Expenses become a big part of the equation before deciding if a rental property can become profitable. The biggest expenses are real estate taxes and property insurance. In addition, hiring a property manager to oversee the property costs a monthly fee. If your property has a lawn, include the costs associated with a lawn service, unless you plan on mowing the grass yourself. If your area gets snowy weather, consider snow removal costs for the driveway or sidewalks. As an upside, certain expenses are tax deductible. Consult a tax professional if you have questions about what qualifies.

Considerations

Always have a separate fund for future repairs and maintenance. Invariably, things break. Another unpredictable situation no owner thinks about is what happens if the renter stops paying the rent. If the property contains a mortgage, the mortgage payment will have to come out of your pocket in order to prevent a default on the loan.

Lease

A lease governs the responsibilities of the landlord and tenant, and your rental property should have one in place. The lease becomes proof of an agreement in case the tenant breaches the contract terms. The agreement should specify at a minimum the lease term, the amount of rent and when it’s due, and the responsibility for paying for utilities.

Tenants

A successful rental property is often measured by the tenant that occupies the rental. A paying tenant who takes care of the property becomes a dream tenant. However, the tenant who defaults on the rent and damages the premises becomes a nightmare. To avoid the potential bad tenant, landlords sometimes employ a screening service to find tenants with good credit. Otherwise, landlords may find themselves in landlord-tenant court for eviction proceedings and the recovery of damages.

References

• Total Real Estate Solutions: How to Get Comps
• Home Addition Plus: What to Look for When Hiring a Building Contractor
• Nolo: Top Ten Tax Deductions for Landlords