Becoming a landlord is commonly the first step in becoming a property investing. The question is: are you cut out to be a landlord?
Do your homework first
Insurance: If you rent your home, your homeowners insurance is going to increase because it’s now not owner-occupied. So-called “dwelling” policies also include a separate liability policy.
Equity: If you purchase a property to rent, you’ll need to have at least 20% equity in it to avoid having to carry private mortgage insurance. The good news is, that will allow you the opportunity to gain price appreciation on 100% of the property while having only 20% into it.
Your return: Start by figuring out how much you can charge for rent in your area and multiply by 12. Then deduct taxes, fixed expenses (such as mortgage payments, insurance and lawn maintenance), and utility and property management fees, if any.
Cash flow: Chances are, your rental will be vacant from time to time. Your next renter rarely comes walking in the next day. How easily can you weather those non-revenue spells?
Maintenance and repairs: When repairs are needed, do you have a list of contractors you can depend on to get the plumbing fixed and the air conditioner back on?
The law: Discrimination based on race, color, national origin, religion, sex, disability and the presence of children is definitely a no-no. Knowing the law will help you stay in complete compliance with regard to safety issues. Not knowing will not protect you from legal action.
Are you up to becoming a landlord?
Once you’ve determined you can afford to become a landlord, the next step is to weigh whether you’re up to the task. Pondering these questions will help:
Do you live on-site or nearby? If not, you may want to consider hiring a local property manager.
Are you naturally handy? Rental properties can require frequent, hands-on maintenance.
Are you familiar with your state and local landlord-tenant laws and neighborhood rental restrictions?
Do you negotiate well?
Are you good at resolving conflicts?
Do you mind being interrupted on nights and weekends?
This business is about managing people and managing conflict. Finding the right tenants, screening them, dealing with the different personalities and having to fight to get rent or deal with collections — most people just aren’t cut out for that. But are you?
*Bankrate