Tips for being successful with income property
Is being a landlord the right move for you?
Have you ever dreamed of being a landlord? Owning rental property can be a great way to generate additional income, especially with rents rising and strong rental demand.
While there are many benefits to being a landlord, it's not as simple as buying a property and collecting rent every month. There's work involved in managing a rental property and a number of factors to consider before making the commitment.
From buying investment property to managing your rental income, we've put together some important things to consider and some tips to help you be successful*.
Do your homework
- Determine what kind of rental property you want and size it based on your goals. Do you want to have a vacation rental, Airbnb property, or a conventional rental?
- Understand the roles, responsibilities, and the time and money commitment involved. Owning rental property is typically more hands-on work than other "passive" investment types-unless you pay someone else to manage your property, which will reduce your income stream.
- Crunch the numbers. You'll need to determine how you're going to finance the new rental property, plus determine ongoing expenses like a mortgage payment, taxes, and property maintenance to calculate cash flow. In addition to rental income, property appreciation is another avenue for profit. You could also leverage your first property to purchase additional income properties.
It's ok to be choosy when it comes to the property and its location:
- Assess the neighborhood
- Evaluate rental value vs. property cost
- Evaluate the local tax/regulatory environment
- Ensure the soundness and rental appeal of the property
Choose the right team
Buying an income property is different than buying a primary residence. It's best to work with a real estate agent and lender who have experience in this area. They can provide helpful advice, identify opportunities, streamline the process, and help you avoid pitfalls and unnecessary roadblocks and costs.
Plan for the unexpected
In addition to planning for expected costs like taxes, routine maintenance, insurance, licensing, inspections, registration fees, and the mortgage, you should also plan for unexpected costs, like major repairs, utilities when unoccupied, code-mandated modifications/updates, and more.
Understand the law
It's important to understand landlord-tenant laws and all ramifications in cases of nonpayment, property damage caused by the tenants, illegal activities by the tenants, eviction restrictions, and more. Each state sets landlord requirements, which means they vary across the country. Become familiar with your state's landlord-tenant laws.
Hire a professional
Consider hiring a professional property manager if you don't live near your rental property or if you don't have the time to commit to screening tenants and collecting rent. An outside property manager reduces your need for direct involvement in management, facilitates access to professional services as needed (legal or maintenance), and potentially reduces the possibility for costly errors.
Contact your CCM representative to answer financing questions and provide guidance in creating a successful income property strategy.
*Note: This article is for informational purposes only. CrossCountry Mortgage does not make any guarantees about the sufficiency of the information in this article, or that it's compliant with current, applicable or local laws.