3 Crucial Steps to Take Before Buying an Investment Property
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Guest post by Katie Conroy
Owning a rental home can be an easy and effective way to earn a second income. In order to start seeing those profits, however, you need to take the appropriate steps to ensure that your investment property will be easy to manage and cost-effective enough to provide some ROI. Wondering what those steps should be? Before you buy your first investment property, you should check these essential real estate investing steps off of your to-do list.
Estimate Any Security or Maintenance Costs
Before you start making moves to buy your first investment property, you should understand what will be required to maintain and care for that second home. For example, you will need to make sure that your investment is protected, even if it is empty, which can mean shopping for a new home security system. Since this is not your primary residence, it’s okay to look for a mix of reliability and affordability, so do your homework so you can find a security system that will work for your budget and your security needs. That could mean looking for both low-tech and high-tech systems — or a mix of both. Keep in mind, however, that alarm systems can run $675 or more without the added cost of monthly monitoring.
You could also use defensive landscaping to help protect your home. Strategically placed shrubs or thorny bushes under your home’s windows could be enough to deter would-be criminals and these plants can also help add some curb appeal. Securing your rental home is only part of the equation since you also need to factor in the effort and costs of home maintenance, which average $1,100 annually into your overall budget.
Weigh the Pros and Cons of Self-Management
If you want to maximize profits on your rental property, you may be thinking about managing it on your own. While self-management can definitely provide some financial perks, since you will not be paying fees to a property manager, you should also know that choosing this option can also have some potential drawbacks. For example, if you manage your own investment properties, you will be responsible for marketing your rental to potential tenants. There are several resources and guides online that can make marketing your rental home less of a hassle but even with that help, attracting reliable tenants can take time and effort. Not to mention that if you are a DIY landlord, you will also need to take care of any maintenance or repair calls that come in for your property. If you already have a full-time job or you do not want to deal with late-night maintenance calls, you should definitely hire a professional to help manage your property. While you may pay more in fees, you will also gain back more of your personal time. Plus you won’t have to stress about marketing your property when you need new renters.
Understand Related Taxes and Legal Requirements
Properly securing your property and finding the right property manager can definitely help you maximize your ROI, but you also need to be aware of the legal ramifications of becoming a landlord. If you opt to self-manage your property, these potential legal issues can become even more important since failing to follow landlord laws can result in costly lawsuits and disputes. For instance, if you are screening applicants there are certain disclosures you need to provide regarding your property and there are certain questions you must avoid when interviewing potential renters. In addition to these basic landlord laws, owners of vacation properties also need to be aware of short-term rental laws that could impact their ability to turn a profit or conduct business at all. Once you have some rental income rolling in, you will also want to pay attention to tax rules and potential tax breaks that impact you.
Investing in real estate can be a really lucrative way to enhance your finances — you just need to be prepared for all of the details that come with becoming a rental property owner, and you should be able to ensure some ROI on your first real estate investment. Then, you will be ready to find and buy your first rental property.