Are you considering buying rental property as an investment? If so, we are here to help. Craft Realtor, Aimee Terito, who has several rental properties herself, has laid out key things to consider in your rental purchase journey.
Who is a good candidate for buying rental properties as an investment?
“Anyone can do it. You just need to be prepared if you’re going to use it as a rental to be a landlord and be sure you have extra money to use for repairs, and other incidentals that may arise.” – Aimee
Where do you even begin?!
“This is what I do and what I will tell anyone who is an investor to do – if I see a property that I like, I figure out how much it is currently renting for and if it currently rents out easily. After that, I will talk to my lender to calculate my monthly costs to see if it is a right financial fit for me.”
“If you are looking at a multifamily property, most of the time you cannot go in and view it until you put an offer on it. This is because there are likely tenants that should not be disturbed.” – Aimee
How are condos treated differently than single family homes?
“If you are buying a condo that has Homeowner Association (HOA) dues, take that into account because you will be paying the HOA fees in addition to your monthly mortgage. If you want to buy a single a family home, you may not have to pay HOA fees, but your mortgage cost alone will likely be higher.”
“Some HOA boards may have a limit on how many condos can be rented out. This is an important factor to verify before you make your purchase, otherwise you may be stuck with a property that you cannot rent and that you lose money on. Make sure that you also pay attention to the other amenities that the HOA does or does not include i.e., water, garbage removal, etc. This will let you know if there are other costs that you will have to pay in addition to your mortgage.”
“If you are financing your rental purchase, in most cases your lender and the HOA will have to fill out a condo questionnaire to make sure that the condo qualifies for the loan.” – Aimee
Do I need to involve a property manager?
“If you do not want to handle the property management yourself, you can always call a property management company. They will charge you a percentage of the monthly rental cost to keep the property up. They will also charge an upfront fee to market the property and find and qualify the renter.”
“If you plan to manage the property yourself (I handle my properties myself) you are taking the phone calls, you are fixing things, and you are hiring the contractors. You can also expect to be hit with big repair expenses sometimes, like with any home. But when I am searching for properties, I am checking for major things that might have to be replaced soon. So, I check for the age of the roof and the condition of the HVAC. This helps me anticipate costs in the future.” – Aimee
How did you prepare your properties for Hurricane Ida?
“I just checked in. I talked to everyone before the hurricane hit to make sure everything at the properties were in good condition and that there were no fixes needed. After the hurricane passed, I made sure to call my tenants to make sure they were okay as well as the properties.” – Aimee
Do I need to work with a Realtor to buy a rental property?
“I recommend working with a Realtor, especially if you are not familiar with the buying process. Realtors can gather information on the MLS that others don’t have access to. Your Realtor can also market the rental for you.“
“If you want to handle marketing the property yourself, you can market it through Zillow or Facebook marketplace or word of mouth. Or you can have a property management company market it as mentioned earlier.”
“If there are tenants in the property when you purchase it, depending on your contract, you may have to honor the current tenant lease. Make sure to review the lease to ensure the terms are acceptable for you.” – Aimee
What about taxes and insurance?
“Since a rental home is an investment property, you do not get the standard homestead tax exemption as you would on your personal home come tax season. It may be in your best interest to create an LLC or business so consult with you CPA or attorney for their professional advice.”
“Also, your insurance on the property will be a little different than what your homeowner’s insurance is (it won’t be as expensive). If you are purchasing a condo, your HOA may already cover exterior insurance so you will only need to cover interior insurance. If you are purchasing a single-family home, you will likely cover both exterior and interior insurance. If you use are using a homeowner’s insurance that you already have a relationship with, this could help you to get a discount on your insurance premium.” – Aimee
How will rent work?
“I recommend having a separate bank account for your rental property so that you do not commingle funds. This helps you to clearly understand what funds are associated with the rental.”
“In terms of the cost of rent, I have often read that you should rent the home out for $1.00 per sqft. Depending on the location of the rental and the amenities provided, i.e., pool, gym etc. that could fluctuate.”
“You can collect rent in a lot of different ways. The Zillow app and many other websites and apps lets you collect rent. I use Venmo or Chase Quick Pay/ Zelle.” – Aimee
If you have any questions about rental/investment properties or general real estate inquires reach out to Aimee!