This is part two in a series of three posts dedicated to people who are considering buying rental properties.
I originally asked..
Do You REALLY Want to Be a Landlord?
In the previous post we discussed how rental properties will affect your TIME.
Now, let’s talk about something near and dear to many of us..
How will being a landlord affect your MONEY?
I’m not just talking about money to BUY the rental property.
I’m talking about..
typical rental expenses
Are you cashflow positive when your property is rented?
The math isn’t as easy as your rent income being $1000 and your payment being $875 leaving you $125 profit.. that’s pretty slim! Remember you need to account for not only the mortgage, taxes & insurance, but also for repairs, maintenance, capital improvements and vacancy.
Speaking of which, do you have money saved up for minor repairs and routine maintenance?
Can that money be replenished? [If not, you don’t need to buy a rental..yet.]
How do you handle repairs? Do you pay someone or do it yourself? (even if you handle your time isn’t “free”)
What happens when a home needs a new heat & air system, roof or any other major repair?
What if it needs a termite treatment?
And what about the garage opener that just went out?
Don’t forget the toilet leak.. Oops – the tenant forgot to tell you about it and you got lax on your inspections. Now the bathroom floor now needs to be replaced!
Can you cover the cost of new carpet, paint, some repairs and holding costs (mortgage, utilities, lawn, etc.) when tenants move out?
What do you do when the rent check doesn’t show up when it’s due?
Are you going to market, fill and manage tenants or will you incur expenses hiring a property management company?
Do you study tax code or will you pay for a good CPA to handle your taxes?
Increasing your portfolio
OK, say you have a rental that has been doing great for over a year.
You bought another a few months ago and are ready to step it up a notch and build up to 5 to 10 rentals..
What do you do when 2, 3 or more rent checks don’t show up when they’re due?
How about when several properties need repairs?
If you plan on building up your rentals – there ARE months where you have multiple people who don’t pay, multiple vacant units and maybe more units being rehabbed that you just purchased.
How will this impact your finances?
Since we didn’t focus on this last week.. how will managing multiple units impact your TIME?
Are you prepared for situations like this?
As I mentioned yesterday, hiring a property management company could save you TIME.
The downside is you have to exchange money for time.
A property management company may take 8 to 10% of your rent.. and, let’s be honest, no one is going to care for your property as much as you are.
Even with great processes in place when someone manages hundreds of properties yours will be one of many others.. just a number.
When a property is vacant the property management company may lose the extra income of $100 on an $1000 a month rental when it’s not filled.
That same property may cost you $800 or more for the mortgage, taxes, insurance, utilities and any maintenance needed while it’s vacant.
I’m sure there are some great property management companies out there – just shop around and talk to their customers if you go this route.
Does it make sense – in your current financial situation – to buy an investment property?
As you can see.. MONEY is a major consideration when you’re thinking of taking on rental properties.
Now let’s start thinking about the next question..
How will being a landlord affect your LIFE?
Thinking of buying a fixer upper in Bartow county?
Check out the below slideshow to see what is on the market now!