If you are toiling with the idea of buying an investment property to rent to tenants, there are a few things you need to think about first. Owning a second property has its merits and could be a great way to make a bit of money in the long term, but it can also be quite stressful and in some cases risky so, it’s not something you should do without careful consideration.
If you are thinking of becoming a landlord, here are 9 things to consider before taking the plunge.
Will it be a long-term investment?
You never really know what property prices are going to do, so if you are looking to invest in property, it’s best to view it as a long-term thing. If, on the other hand, you want to make money fast, then you may be better buying a property that you can flip rather than rent.
Do you need a mortgage?
If you don’t have money to buy a property outright, you may need a mortgage. Although mortgage rates are pretty low just now, buy-to-let mortgage rates are usually higher.
Speak to an independent financial advisor to find out what your options are and how much you may be able to borrow based on income multipliers.
Furnished or unfurnished
The answer to this question will partly depend on your target market. If you are aiming for students, for example, a fully furnished property is probably the way to go. On the other hand, if you are renting out a family home, you may find that most tenants already have their own furniture and are looking for an empty property.
You will be able to charge a little more for a furnished property, but, as well as contents insurance, you will be responsible for replacing anything that is no longer up to standard so, it’s a decision you should carefully consider.
How will you deal with maintenance issues?
Maintenance issues will usually arise at one time or another, so you must consider how you will deal with things as they crop up. If you can put your hand to most things and are competent in terms of DIY, then you may be able to remedy any issues yourself. If you can’t, it’s a good idea to have a maintenance contractor lined up to deal with any issues on your behalf.
According to Lamber Goodnow Injury Lawyers, in some instances, landlords can be held responsible for injuries sustained in a rental property. One of these is when defects or maintenance issues have not been addressed correctly or timeously, so it’s not something you should avoid doing. If problems arise, deal with them asap, or you could end up with a nightmare on your hands.
Can you afford the running costs during empty periods?
Tenants come and go, and you may not always have another lined up straight away, so there could be periods where you have no rental income. You must be confident that you can afford to pay the running costs during these times. Mortgage payments, heating costs, insurances, etc will still need paying so, calculate how much these are likely to be and make sure you won’t run into difficulty covering them.
Defaulting on a mortgage can have horrendous consequences and is not a situation anyone wants to find themselves in. Do the math, and if you are in any doubt about affordability, it may be best to put things on the back burner meantime.
Will you use a rental agency?
Marketing, ongoing maintenance, and dealing with tenants can be time-consuming so, if you lead a busy life, you may benefit from using a rental agency. For a monthly fee (which is usually a percentage of the rental income), they can deal with any issues that may arise from time to time and manage the whole tenancy process from start to finish. It will mean a reduced monthly income, of course, but it’s worth it when you take into account your time as well as how stressful it can be to manage things on your own.
What is the best way to higher decorate?
How you decorate a rental property very much depends on the location and your target market. If you are targeting high-earning professionals and looking to yield a top rent, you should consider going more upmarket. High-quality finishes and fabulous interior design will be expected, so although you shouldn’t go overboard, you must make sure it ticks all the boxes.
If, on the other hand, you are purchasing a property in a less than desirable area and rent levels are low, keep things neutral and don’t spend too much. Your property still needs to look appealing and be well maintained, of course, but spending thousands is pointless if it will take you years to recoup.
Don’t forget insurance
Whether your property is mortgaged or not, landlords’ insurance is crucial when buying an investment property. You never know what will happen in the future, but knowing you have buildings cover (and contents if needed) will give you peace of mind that you won’t get any nasty surprises should anything go wrong.
Insurance premiums will vary from place to place, so spend a bit of time comparing and checking the insurance cover on offer before you make your decision.
Treat your tenants well
Landlords don’t always have the best reputations because many simply don’t care about their tenants. If you want your tenants to be there for the long term, the better you treat them, the more likely that will be. If maintenance issues arise from time to time, deal with them within a reasonable timeframe. Not only will it benefit your tenant, but you will also be protecting your investment.
Maintenance issues that are left unattended usually get worse, which could eventually lead to structural damage that may cost a fortune to repair in the long run. As a landlord, it’s important to remember that it may be your property, but it’s your tenant’s home.