Investing in residential real estate can be a great way to diversify your overall financial portfolio. But being a landlord may not be for everyone. If you’re weighing the pros and cons of buying an investment property, be sure you consider the following key points.
Right now mortgage rates are low, even for mortgage products that are generally considered riskier than a traditional home loan. Mortgages for investment properties are no exception. Although investment property loans typically have higher rates than a loan for an owner-occupied residence, the recent geopolitical and economic events have made interest rates hover at historic lows. Now could be an ideal time to lock in one of these low rates.
Although rates are low now, there’s no guarantee that they will stay that way indefinitely. In fact, some experts predict rates to go back up to 3.5% by next year. While no one can say for certain what rates will do, it’s usually wise to lock in a low rate when you can, once you are serious about financing an investment property purchase.
Owning rental property is a job unto itself. Even the newest, nicest homes typically require regular maintenance and repairs. Before you commit your time, energy, and money to an investment property, be sure you’re prepared for the extra work it may take. When your tenant calls at midnight because the heat went out, will you be able to respond to their needs?
One way to ease the burden of being a landlord is to hire a property manager or management company to handle these things. Most property management companies offer comprehensive packages of services to take the work off your plate, from collecting rent to scheduling preventive maintenance, to responding to emergency calls after hours. Yes, you’ll pay for these services, which will decrease your overall profit from the rental cash flow. However, if peace of mind and low maintenance landlording (is that a word?) sounds appealing to you, it may be well worth the cost.
President of the Landlord Protection Agency, John Nuzzolese, says “…95 percent of a landlord’s problems can be eliminated in the tenant screening process.”
Experts like Nuzzolese agree the best ways to weed out potentially problematic tenants include…
- run a background and credit check on all adults who will be living in the home (not just the one signing the lease)
only consider tenants whose income is 2-3 times their rent payment
- avoid renting to family and friends and avoid becoming too friendly with your tenants
- write up a clear, thorough lease agreement and have a real estate lawyer look it over before you have your tenants sign
Home Loans for Landlords
Are we giving you second thoughts of becoming a landlord? Don’t let the more challenging aspects of owning rental property scare you off. Owning an investment property can be very rewarding and definitely has the potential for a big payoff in the long run–not to mention the ability to generate additional cash flow every month. Just be sure to give the idea plenty of wise consideration and avoid making any major decisions on a whim. If you’re interested in exploring the idea further, a good place to start would be to learn about investment property financing.
Take a look at some of the loans that are well-suited for buying rental property:
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