What you Must Know Before Becoming a Landlord
As real estate prices remain low around the country, many people are
taking a look around and considering the purchase of investment
property. While the idea might sound simple enough, experts warn that
becoming a landlord might not seem as simple as you might at first
think. Without careful precautions and planning you could find yourself
with a tenant that is nothing short of a nightmare. Not only does
becoming a successful landlord require common sense, but also business
sense.
It should be noted that while not all tenants prove to be problems, it
is the small percentage that wreak havoc which one must worry about. The
problem is that as a result of the recession, it has become increasingly
difficult to locate tenants who are financially able to pay the first
month's rent as well as the last month and a security deposit before
moving in. An increasing number of landlords are now reporting they must
go through literally dozens of rental applicants before they are able to
locate one who is qualified.
Furthermore, many landlords are also discovering they must compete with
homes that are foreclosed. Due to the fact that the homes are
foreclosed, consumers have been able to rent the homes for lower than
the regular market price, which has resulted in driving rent prices even
lower. While it can be incredibly tempting to purchase a potential
investment property at a low price, it is important to carefully
consider the property before actually purchasing it. For instance, many
people are drawn toward the idea of purchasing a condo unit at a low
price and then renting it out; however, you may well find buying a
single-family home or even a triplex or small apartment building to be a
better idea. With a condo you will always be subject to the regulations
of the condo board. The special assessments that are frequently levied
by such boards can easily amount to thousands of dollars.
If you can afford to do so, the best option is to pay cash and purchase
a multi-dwelling building or unit. You can easily offset the rent by
living in one unit and renting out the remainder. Keep in mind that
financing can sometimes be a challenge for the purchase of an investment
property. Most lenders not only require excellent credit histories, but
also larger down payments and cash reserves. This is precisely why the
purchase of most investment properties are cash deals.
Regardless of how you ultimately purchase an investment property, the
key to long-term success is locating a solid tenant. Taking the time to
perform criminal background checks and credit checks is absolutely
essential. In most instances, for a small fee, you can receive a
criminal background report, which includes searches on terrorists and
sex-offenders as well as a credit check. Specialized services for
landlords can also provide automated identity verifications. The cost
for such checks usually runs about $25 or $30, but is certainly well
worth the money spent when you consider the amount of money an eviction
can cost. In some areas, the cost to file an eviction can near $200.
Many landlords also go the extra step of collecting a non-refundable
application fee, which must be paid fully in cash before they will even
show a rental property to a possible tenant. As part of the process, an
application must be completed beforehand. Basic rental applications
includes a range of details, including why the tenant is moving, whether
they work at home, the types of recreational vehicles they own and
whether they ever work on their cars at home. Some landlords even ask
rental applicants to state whether or not they own a vacuum cleaner. The
basic key is to make sure you are never so desperate for a tenant that
you will rent to the first person that comes along.
When reviewing rental applications, be sure to carefully consider all of
the details and not necessarily rule out prospective tenants just
because they have been through a difficult time recently. For instance,
even applicants who have recently gone through a foreclosure could still
make good tenants; provided you do a credit check and see that
everything else is okay.
In the end, your final decision must be one that is based on common
sense and good business sense and not on emotion. Most people today are
going through a difficult time as a result of the down economy. Being a
landlord can still be a lucrative business, but only if you are
prepared.
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