7 things you need to know before buying a rental property

Is Buying A Rental House or Condo A Good Idea?

Owning a rental property has potential to create extra income if you properly prepare. There are a variety of circumstances that lead our clients to consider owning a rental property. We work with clients targeting investment properties to rent.

One of our top priorities is to ensure our clients are comfortable pursuing the option that best fits their needs. We work with clients that  would like to turn the investment into a full-time income, or are turning to rental options as a necessity. The following are a few areas that can begin the consideration process for owning rental property.

How do I prepare for owning a rental property?

1. Get your finances in order                     

You need an accurate financial picture of the home you will be residing in as well as the rental property. Before considering a down payment on a new home, carefully review your current expenses to understand how much you can afford. Use a mortgage calculator to determine a comfortable investment range.

how much does a rental property cost

If you are looking to buy a rental property as an investment, cash, and savings are needed to move forward with owning a rental property. The industry standard is generally around a 25% down payment, though 20% may be possible.

The majority of the investor clients we work with pay cash. Otherwise, the financing will eat into profitability. There are other options that you can discuss with your lender. If you need to start saving for a down payment, try these 4 budget savvy tips.

Know About Tax Deductions When Buying Rental Property

There are tax implications to consider when planning to transition a primary residence to a rental property. Taxes for a rental property can be complex and it is advisable to work with a certified public accountant to help you navigate the intricacies. Rental income may be offset by certain deductions such as:

  • Mortgage interest
  • Insurance
  • Utilities
  • HOA fees
  • Maintenance repairs
  • Property taxes

You can learn more about expenses that may qualify for deduction here.

2. Figure out how to manage the rental property

Maintaining and managing a property requires a time and money investment. There are several factors that affect the level of resources required. If you chose to invest in a multi-unit rental, the time and money investment will be greater. If you chose to manage the property through a property management company, you will invest less time but more money. In the Triangle, we see management fees between 8-12%. 

If you choose to manage the property yourself, there are several industry standards that can be followed, such as:

  • Completing a reference check
  • Running a credit check
  • Being up to date on Fair Housing practices
  • Familiarizing yourself with North Carolina landlord-tenant laws
  • Understanding practices about entering the rental and how to engage those leasing

The goal is to make the rental experience good for you and the tenant.

3. Determine Rent and Expenses

To turn a profit, the rent needs to cover maintenance and expenses. In locations where rental properties are competitive, rental prices may be low, especially if competitors outright own their properties. Your financial homework includes understanding the competitive rental landscape. The ideal monthly profit margin starts at $500. If you can meet this goal, you may be on track to earn $6,000 a year in rental income with one property.

4. Ask yourself: Are you ready to be a landlord?

To successfully create additional income as a landlord, you need a network to assist with the care and maintenance of the property. You should also be willing to do some of the work yourself.            

do it yourself home maintenance

5. You Might Have To Do Some Of The Work Yourself

If you do not want to involve a property management company, you will need to tackle some of the maintenance and repair work yourself. In addition to being readily available for emergencies, you will need some basic skills with light plumbing, yard work, and maybe even construction. If you manage to do some of the work yourself, this will save you lot of money. Many of your local hardware and improvement stores offer a workshop to gain basic mastery for flooring and plumbing. You could also enroll in a workshop at a local college like Durham Tech to take targeted construction classes such as Plumbing Repair 101 or Introduction to Cabinetry.

6. You Will Need A Support Network

We have a strong relationship with some very successful landlords. Our clients know we work hard to help them find the right investment properties. Because of the nature of helping clients through the home buying and selling process, we’ve amassed a network of prominent contractors, lenders, designers, etc. Working with a good agent is essential, especially if you plan to expand your property portfolio.

7. Ready for the next steps?

My NC Homes serves the entire Triangle Area in central North Carolina, from Durham to Cary, Morrisville to Chapel Hill and even parts of Hillsborough. We partner with our clients to provide as much information as possible to help you make informed decisions about your real estate investments. With a combined 50-years of experience between Larry, Andrew, and Lauren will help you navigate the process of owning a rental property.

Co-authored by 3 Bossy Bees

Posted by Larry Tollen on
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