Finding out later that your rent won’t cover your financing costs. Not only do you need to cover your mortgage payment but property taxes, insurance and maintenance costs as well. If the property is currently rented, income will be listed in the multiple listing service. If not, work with your agent. If it doesn’t cash flow, it’s not an investment.- Know how much cash you’ll need at the closing table. Including your down payment there will also be closing costs associated with your new mortgage. Coming up short will leave you scrambling for dough. Your bank or mortgage company can give you a good idea how much you’ll need.
- Speaking of banks, know in advance you’re qualified for financing. Your purchase is for the long haul and the best type of financing is with a conventional loan underwritten to Fannie Mae or Freddie Mac guidelines.
- Lock in a fixed rate and avoid hybrids or ARMs. That way you can always forecast holding costs and raise rent over time. The longer you hold onto a property, the higher your rent will ultimately be. That means more cash flow when you’re closer to retirement compared to just starting out. There’s no gamble with fixed rates.
- Who’s going to collect the rents? Mow the lawns? Fix the busted hot water heater? If you’re just starting out, you’re employed elsewhere. You’ll need to find someone to handle those daily duties for you while you’re out looking for more deals. Hire a professional property manager.
- Renting to relatives or friends isn’t a very good idea. Bad things can happen over time and if your nephew falls behind on the rent will you really evict him? Keep family and friends at bay and keep your rentals strictly a business relationship, not a family one.
- Don’t worry about making a lowball offer. You’re not buying a property to make sure you don’t insult the buyers. Make the lowest reasonable offer you can. Don’t walk away from the closing table wondering whether or not you could have gotten a better deal.
- Review your deals with your insurance agent. Don’t be caught on the wrong end of a liability claim. Your tenants and their guests could slip and fall and it might be your fault. Beyond insurance to cover damages to the unit, make sure you’re protected from a legal perspective.
- Take advantage of other people’s money. An all cash transaction freezes liquid assets. The only way to get those funds back is to sell the property or obtain a more expensive equity loan.
- Speaking of cash, make sure you have plenty on hand. If a new deal hits your radar you’ll need funds to finance the deal and you’ll also need cash on hand for maintenance costs. There are legal obligations as a landlord and one of the most important is to provide a safe, habitable environment for your tenants. Don’t put off needed repairs.
I’m shcoked that I found this info so easily.
Makendra, hey we appreciate the comment and yes the concepts the easy and steps can be followed. Its like anything it can be learned if you are willing to invest the time and be diligent… best of luck and keep us updated