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We talk to new investors regularly about buying rental property. For many, this will be their first time buying a home that they won’t be living in themselves. They’re buying it as an investment tool.
It’s important for new investors to understand that owning rental homes is just like operating a small business. And there are important things to prepare for, including taxes, problem tenants and unexpected repairs.
Taxes
An investor is responsible for property taxes, HOA dues, and insurance premiums even if there’s isn’t a paying renter in the home. It’s important to have cash reserves in place to cover these costs, especially when there isn’t income from an active renter.
NOTE: Home Rental Services significantly beats the industry average for days of vacancy between renters. This is good for our investors because they see less time on market for their rentals, which means more revenue from active renters.
Problem Tenants
There are no guarantees that a renter is going to be perfect. Sure, they are out there, but there are also plenty of problem tenants as well. We have a thorough application and screening process to minimize the risk of a problem tenant.
If you find yourself with a problem tenant, you might be looking at expenses related to your time, costs for evicting them, loss due to unpaid rent and costs for fixing any problems in the home that they might have caused.
Unexpected Repairs
Earning passive income from a rental property is an attractive proposition for a new investor. The reality is that buying a home and renting it out is just the beginning.
A home requires ongoing maintenance if you want it to stay in good shape. It takes effort and expense for a property to be maintained properly.
Small problems can, and will, lead to much larger problems if they aren’t taken care of in a timely manner.
The bigger challenge that we’ve seen for some investors is a larger expense like a new heating and air conditioning system or a new roof. Some investors don’t plan appropriately by having a cash reserve in the event that a major system fails in their rental home.
There are lots of ways to finance the purchase of an investment home, but many people rely on the monthly income to make it all work. The setback of a major expense can put a damper on your cash flow.
The Bottom Line
The bottom line is that you need to know what you are getting into when considering an investment rental property. It can be a lucrative investment, but there’s also a good chance that there will be surprises along the way that you need to be able to take care of. It takes knowledge and planning. If you need help, let us know!
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