One of the most interesting real estate trends in recent years has been growth in the number of families renting, rather than buying, their homes. That in turn has led to more attention to buying and managing rental properties as an investment. In addition to the sorts of long-term rental arrangements you’ll find in any city, our area also offers opportunities to tap the vacation rental and college student markets.
As with any major investment, of course, it’s important to understand the pros and the cons, do your homework, and rely on the expertise of professionals where necessary.
Anyone considering getting into the landlord business must carefully consider all the costs of owning rental properties. Those include the obvious ones: mortgage payments, insurance and taxes. (Note that you may pay more to insure a rental house than one occupied by its owner, but you won’t be responsible for insuring its contents.)
As with any business, expect to pay fees to accountants and attorneys, who are needed to help you navigate the complexities of taxes, leases and tenant-rights laws.
A rental property owner should be prepared to make capital investments on such big-ticket items as heating and air conditioning systems and appliances, which sooner or later will need replacement or major repairs. Then there are the more routine maintenance costs, which should be covered by a contingency fund. It might be fixing a clogged drain or a bad light fixture; it will certainly include repainting and shampooing carpets between tenants.
A landlord might also have to pay for utilities – power, water, sewer, trash collection, cable TV -- especially if the property will be rented by the week to vacationers. Likewise, the choice of whether to hire a management firm to help market the property, handle maintenance, and deal with tenants will have an important impact on your costs, and the amount of work you have to do.
My advice to real estate investors is to know what you can afford, know what costs are deductible as business expenses, and to have a plan. That means to understand what you expect to get from your investment, how quickly you’ll see a return on that investment, and how you’ll get out. Having an exit strategy is important because selling investment real estate isn’t as simple as liquidating a stock or a mutual fund.
Some other issues to consider:
Johanna F. Still - Oct 3, 2022
Johanna Cano - Oct 3, 2022
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