Investment Property 101: 7 Ways to Manage and Protect a Rental
A guest blog by Katie Conroy
Purchasing property for investment purposes is a smart move. When it’s your first property, however, you’ll find there are many unique challenges you’ll need to navigate. Here, we’ll discuss seven ways to manage and protect your rental property, starting at square one.
Have Security Features in Mind
As you begin shopping for a property, think ahead to one of the most significant priorities as an investor: protecting your investment. That means security measures to keep the home, as well as your tenants, as safe as humanly possible.
Combining low-tech measures like prickly plants under windows with high-tech equipment like motion-activated lighting is one strategy. An alarm system is another option, but this won’t be in every landlord’s budget, especially when starting out. However, as HomeAdvisor suggests, you can get in contact with your local police department to see if they offer free security checks. That way, you’ll know which areas you need to address.
Choose the Property Carefully
Cheap property is easy to come by, but the price isn’t the only factor that matters; in fact, the location is a crucial deciding factor for most renters. As a buyer, if you prioritize location, you can change nearly anything else about the property down the road. For example, kitchen and bathroom remodels stand to earn the highest return on investment for landlords. In contrast, if you choose a great house with a poor location, there’s no fixing it down the line.
Skip the Fixer-Upper
It’s easy to grow big dreams of managing multiple investment properties — and securing them for dirt cheap. However, unless you’re an experienced contractor, it’s not usually a good idea to buy a fixer-upper. You may also need deep pockets to afford the renovations, which could wind up costing more than your initial estimate. Unpredictability is the major issue, so most first-time investors should skip properties that need work.
Be Thoughtful About Pricing
The second deciding factor for renters is the price, according to AppFolio. Since a lot of folks move to save money, you may want to err on the competitive side when listing your property. At the same time, you should consider comparable properties in the neighborhood and see what the competition offers for the same or similar amounts.
Carefully Screen Applicants
Tenants are your source of income, so you need to select reliable ones. Chasing after a tenant for the rent payment is not ideal. As TransUnion explains, most landlords check their potential tenants’ backgrounds and credit history. You should use every available avenue to screen applicants for past late payments, any evictions, criminal convictions, lawsuits, and overall financial stability. The rental agreement that you offer should also stipulate what items the tenant is responsible for and any limitations that apply.
Decide on Furnished Versus Unfurnished
Renting a furnished house can net you a greater rental price, says the Nest. However, the difference may be slight unless you are renting in an area that sees seasonal rentals.
That said, furnishing a home can also help prospective tenants see the appeal of homes with smaller floorplans or uniquely shaped rooms. Staging the rooms — and leaving the furniture in place — could make the difference between securing a renter versus having it vacant.
Anticipate Tax Costs Before You Buy
Many newbie property investors expect to start turning profits immediately. But along with the cost of securing and prepping a home or apartment, you’ll also need to budget for taxes. You’ll pay property taxes, but you also must pay taxes on rental income. Rental income is passive, though, which means you won’t pay Social Security or Medicare tax — just federal income tax. You can also factor in operating expenses, depreciation, and some repairs to offset tax costs
Investment property can be complex, especially for those without a background in real estate. However, it’s not impossible to purchase and even fix up a property to rent. In no time, you can begin earning passive rental income from your new investment — and there’s no limit to how much you can invest if you take the right steps to prepare.
Photo via Rawpixel