With today’s rising rents, lower interest rates and property values, buying an investment property may be a good addition to your financial portfolio. Before you make the decision to purchase you should consider the following:
Check with your CPA or financial planner: Current tax laws favor investors. Depreciation and principal reduction can build wealth over time. Holding a rental property until its owned free and clear can be a good source of retirement income
Compare recent sales and rents: Look at what has sold recently and what income it generates. Are certain areas generating better rents? What down payment do you need to generate the return you are looking for?
Property Taxes
Property taxes are initially a function of sales price. Do not assume your taxes will stay the same as the current owner. Review the current tax bill to determine the present assessments and estimate your taxes based on the “new sales price”.
Utilities
What utilities are paid by the tenants and what utilities are paid by the property owner? What is the standard for similar properties in the area? Utilities paid by the property owner increase monthly carrying costs of the property and can increase over time.
Insurance
Compare companies and levels of coverage. Consider higher liability limits for rental properties.
Inspections
Hire a professional home inspector and termite company to do a thorough inspection of the property and all components before moving forward with a purchase.
Financing
Does the property qualify for fixed rate financing? If not, what financing is available and what will the impact be on the cash flow of the property over time?
Develop a Maintenance Plan
Depending on the condition of the property you purchase, your plan will vary. A “Fixer Upper” may cost less but will have higher initial maintenance and repair expense. Over time, even well maintained buildings will need repairs and replacement of key components. You will need to plan ahead for those expenditures.
Property Management
There are many benefits to hiring professional property management. If you are not experienced with owning investment properties you should consider hiring professional management. On the job training can be a costly mistake for the novice landlord managing the property efficiently with minimal vacancies. Prompt collection of rents will help the bottom line but there is much more that a good property management company can offer. Their experience dealing with Landlord/Tenant issues, Fair Housing laws, Tenant Screening, and established relationships with licensed contractors and repairmen can take much of the daily responsibility out of owning investment property. Do not assume your taxes will stay the same as the current owner.
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