So, you just bought a new home in a great neighborhood. It is spacious enough to raise a large family and entertain a small party of guests. The only problem is you’re single with no children and you’re new to the area. Who knew having it all would be so costly? Fortunately, you can pay-off the property and build up your cash flow by renting out your new home.
Renting is not for everyone, however. You’ll essentially be working a very demanding full-time job on top of whatever occupation you currently hold. Take some time to consider the particulars of home renting to decide if the profit is worth it.
Do You Have the Money?
Whether or not you have the credit line to back a home purchase will be your first concern. Each neighborhood represents a specific market. You’ll have to research the given market to decide if a prospective property is affordable.
Placing a cash down payment on a home is not necessary, but can eliminate the expense of mortgage payments. The rental income will go towards paying off the property, after deductions. Check the rental rates in your market to decide how high you are allowed to set them.
How Good Are Your Repair Skills?
After a careful screening, you might have settled on the right tenants. Just don’t expect to sit back and let them do all the work. The tenant is essentially a customer that you, the service provider, must satisfy.
As the landlord, you’ll have to check frequently to make sure the occupants are taking care of the property. Structural and home amenities (heating, appliances) repairs will be your most frequent concerns. It helps to know reliable contractors to hire when things don’t go the way you’ve planned.
Can You Communicate With Your Tenants?
Most landlords are expected to make monthly property inspections. The tenants will also be calling you whenever something is on the fritz. Emergency calls can come at any time of the day, or evening, so you have to ready to move.
While horror stories abound, good tenants do exist. Some will lend a hand in cleaning the interiors, landscaping, or put money towards upgrades. Try to incentivize this attitude. Make an agreement with the renters that you’ll keep monthly rents at a fixed rate if they contribute to the property’s upkeep. This can save both parties lots of money in the long run.
Are the Returns Worth It?
Profit from real estate rentals can be determined after itemizing the property’s price, rental rates, and expenses. The cap rate metric is the most commonly used for gauging your returns. Cap rate metrics takes your cash flow into account along with the property’s market value. This will also be affected by location, whether you are renting our in Nashville or a cheaper suburb.
Your cash flow can go either into a positive or negative direction. Positive cash flow is when your rental fees outweigh the expenses from upkeep. Imagine charging $17,000 annually for rent, but deducting $9,000 for expenses. This will leave you with a positive cash flow of $8,000.