Are you interested in becoming a landlord and renting out a property? If so, know that it is not as simple as buying a property and hoping for the best. There are a few things that you should consider when determining if you want to purchase a rental property.
How Much Is The Monthly Cost Of Ownership?
You need to start by looking at how much the home will cost each month to own. While some of that mortgage payment is going toward the principal on the home, know that the start of the mortgage is going to have more of the monthly payment going toward the principal than interest. There are also things like property taxes, home insurance, and potential PMI if you have less than the required down payment to avoid it. This will be the baseline of how much money you need to make to just break even.
How Much Are The Repairs?
You also need to look at how many repairs need to be made to the home to get it in good condition that will attract renters. Do you need to replace the windows or the roof? These are big costs that you should average into your monthly expenses for the next few years.
You also need to consider the ongoing cost of maintenance, since these are your responsibility as a homeowner. You should be putting aside 1-4% of your home's value each year for those unforeseen problems that can come up. For example, a home that costs $100,000 will require $1,000 to $4,000 per year to cover maintenance. Make sure to factor this into your rental price.
Will You Manage The Property?
Is this a property that you plan on managing yourself because it is nearby, or do you need the help of a property management company to do it for you? If you can't do it yourself, you need to factor in the cost that the property management company will take for finding tenants, screening them, and taking care of problems as they come up.
How Much Do Similar Homes Rent For?
Now that you know your base costs to own the property, you can get a good idea about how much you can charge for rent. Look at similar homes in the area in terms of square footage, bedrooms, and bathrooms. Are the rental prices higher than your monthly cost of home ownership? Then it can potentially be a good rental that will make you some decent income that is mostly passive.
For more information on investment properties for sale, contact a professional near you.