Investing in rental properties can either be a great way to grow a passive source of income into a steady stream of cash or a quick route to financial and emotional chaos. A key component of avoiding the latter is to spend time thoroughly researching your choices, preparing your personal finances, and speaking with a professional who can help set you up for success.
You should also be prepared to take an honest look at whether you are financially and personally able to take on the obligations of a landlord. We assure you, this preparation is well worth the extra time and initial expense! SageSpring Wealth Partners can help guide you through this process, arming you with the knowledge and confidence required to become a rental property investor.
In this article, we will discuss three financial tips for individuals considering managing multiple investment properties.
1. Prepare (Financially and Mentally) to be a Landlord
In the age of HGTV, real estate investors have become celebrities, and flipping houses has been made to look like a fun hobby rather than an undertaking that can create all-consuming stress. The truth is, investing in properties requires more than money and an eye for design—you are now responsible for providing a safe and legally sound home for your tenants.
Something important to consider as you plan your career as a landlord is whether or not you will be able to afford completely outsourcing maintenance in the beginning. If not, it’s important that you have basic knowledge of how to navigate a toolbox prior to taking on the responsibilities of a landlord. This is just one of many examples of what you should be thinking through.
2. Prepare for Roadblocks
Without a doubt, small (and large) disasters are bound to come up throughout your experience of investing in rental properties; it’s best to address these now, as uncomfortable as it might be, before finding yourself knee-deep in a problem without a lifeline. How should you prepare for the unexpected as a landlord?
First and foremost: you should consider investing in landlord insurance. This will help protect you from property damage, lost rental income, and it also offers liability protection. Unfortunately, even after you diligently examine rental applications and background checks, you are bound to experience a renter who inflicts some kind of damage to your property.
One way of minimizing potential damage to your rental property is to schedule a bi-annual walk-through. Instead of performing a walk-through only before and after, examining the property mid-way through a lease is a great way to stop maintenance issues before they cause substantial damage. A bi-annual walkthrough will also serve to hold your tenants accountable throughout the course of their lease.
3. Prepare your Personal Finances
After you have thoroughly examined the implications of being a landlord and have taken steps to prepare for the myriad of inconveniences that are bound to arise during this process, it’s time to take solid steps to prepare your finances. The following are financial factors to consider:
- Pay down all personal debt—medical expenses, credit card debt, etc.
- Secure a downpayment of at least 20%—mortgage insurance won’t be available
- Be familiar with your tax laws—reconfigured bonus depreciation rules, etc.
- Have a rainy day fund—count on inevitable vacancies, extensive damage, etc.
Most importantly, seek expertise from a financial professional to help guide you through the process of investing in rental properties. You’ll be glad you didn’t brave it alone (and there’s no reason you should).
Need Help with the Financial Side of Property Investment?
SageSpring advisors work with you to create a sensible, achievable investment strategy. With a financial ally on your side, you can be confident that you’re making decisions that help you work toward your goals. Contact us today to schedule a consultation!
