If you’re thinking of buying an investment property, you’ve got a range of attractive mortgage programs to choose from. Managing that investment may present more of a challenge. Here are a few tips to help you out.
1) Getting the Right Return
This isn’t a hobby; your investment property needs to make money. Which isn’t always easy or guaranteed. While there are several ways to determine whether an investment property is worth buying, one of the simplest methods is the gross rent multiplier (GRM) approach. GRM is the ratio of the cost of the property to the rental income it generates each year, not including costs such as property taxes, utilities, and others. The lower the GRM, the better.
2) Preparing the Property
Once you’re the proud owner of a rental property, the work begins. Probably. Unless you’ve purchased a rental unit that is 100% move-in ready, you’re going to have to take care of issues that run from cosmetics such as painting and cleaning to structural issues including roof leaks and making sure the electrical wiring is up to code. You want to find any problems before a tenant does.
3) Marketing Your Rental
How you present your property is hugely important, and property staging techniques used in home sales apply to the photos you’ll take. If it’s a furnished property, make sure it’s decluttered. Highlight any outdoor spaces. Indoor plants can make the space feel more inviting and let in lots of natural light for images that really shine! Where you market your property is equally important. Check out some of the best rental listing sites to decide which ones are right for you.
4) Navigating the Application Process
As getting the right tenant is critical, the tenant screening process is one of the most important steps a landlord takes, ensuring that the applicant has a sound financial history without any past evictions or other issues. You’ll want to charge an application fee and do a background check on each potential tenant. On average, application fees are around $30, with limits set by individual states. Each state has different laws regulating the application process, and you should know the landlord-tenant laws in your state.
5) Consider a Property Manager
While a rental property will never truly be a passive investment, hiring a property manager to handle most of the details can get you close. How much do they cost? Most property management companies charge between 8% and 12% of the rent that’s collected each month.
Though it involves some work, building a portfolio of rental homes can be an excellent way to build wealth. As property values and rental prices increase over the years so does your financial return. If considering an investment property, contact one of our loan originators to talk about the mortgage that’s right for you.
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