Are you thinking about buying investment property and hoping to make a second income from leasing that property? There are a few critical things you should consider when deciding what property to buy.
1. How many tenants could you get from the property? If it’s a single-family home, chances are you’ll only have one source of income for rent. If that tenant falls behind on payments there won’t be any money coming to you to help pay the mortgage. In a duplex or other multi-family housing situation, you’ll have multiple income streams. Then again, more tenants means more maintenance and, perhaps, more hassles.
2. Make sure the building is inspected by a qualified, reputable home inspector. You don’t want any surprises when it comes to necessary repairs or upgrades before you can even begin leasing the space.
3. Check the comparables. Find out how much similar properties in the neighborhood are charging for rent, and what that includes (sewer, trash, parking, other utilities). If your rental income expectations are too high for the area, it’s best to keep looking.
4. Come up with a plan for how the property will be managed. Will you serve as the landlord, or hire a property manager? Will you inspect the property regularly? Do you have a relationship with a nearby repairman to do routine maintenance and repairs when necessary?
5. Consider the location. If you’ve never owned an investment property, you’re probably going to want one that is close to where you live. Buying and leasing a building in a different town can be more of a hassle than you bargained for.
Credit reports can tell a lot about a potential tenant, but they do not show whether someone has a previous eviction notice. Fill in the blanks on a prospective tenant’s background by using a tenant screening service to see important details about their rental history.
