Do You Have What It Takes To Become A Landlord?
There are a lot of business ideas out there, but not all of them are viable for the busy mama. Still, with so much choice, something is bound to pique your interest. You might already have a blog on the go. Or maybe you’re quite arty and crafty and selling things online? Have you ever considered property investment, though? You might feel this is a huge leap from a small online enterprise. But it really doesn’t take as much as you might think to become a landlord:
There will always be a need for cash up front for most business startups. Even bloggers encounter a few costs along the way. You might be worrying that the kind of deposit you need to get yourself a property to let out might be too much. There are a few things to consider. The first is the equity in your own property. If you want to use this as collateral to get going, then you might not need a giant sum of cash in your savings pots.
Of course, there are a few buy-to-rent lenders that won’t force you to use your home to secure a new loan on another property. In fact, if you check the market, you might find there are several lenders right now that are keen to offer loans for this type of property purchase. One of the reasons for this is that you will generate income enough to pay off the loan by renting the property out. This is a big decision to make so talk it over at length with the rest of the family first.
Picking The Right Property
One of the first things you must do is consider the current housing market. It’s really important you do your homework to determine the type of property that is in high demand for renters right now. This will help you maximize your return on investment. It will also help you to ensure you can let the property out quickly!
To produce a comparative market analysis, why not use a specialist real estate website to see what prices properties are selling for. Compare those that are in show-home condition with those that need some attention to the decor. You might see you can save tens of thousands by committing to a little DIY. Now use those same property types in a renters’ market website. What is the difference in rental income you might be able to generate? Finally, get yourself a figure for bringing the property up to the standard required for that rental market in that area to achieve top income.
Doing The Math
By now, you’ve got lots of figures on bits of paper, but no solid commitment to get started. Don’t ignore any gut feeling that the figures don’t add up. Check them and then triple check them until you’re happy you can see the best path forward. As a reminder check through them like this:
Pick the neighborhood where rental properties are most in demand by tenants
Check the purchase price of similar properties nearby that are in great condition
Subtract the purchase price of those that require a modicum of work to bring up to standard.
This is the value you can add to the property.
Price up the cost of bringing that property up to standard. If you hire help, this cost will rise dramatically.
This figure is your additional investment required.
Now check the rental values for the same types of property you’ve been investigating
What is the difference?
The next thing to do is to secure your mortgage offer. This will give you the bottom line figure of how much you can work with to purchase a property. Don’t forget to subtract your costs from the purchase price. If you offer too much money for a property, you won’t be able to do the work necessary to bring it up to standard for the best possible rental income. If you’ve ever considered building your own dream home, you’ll know how tight your figures need to be. It’s always ultimately about the future value, but that’s so hard to determine.
Finding A Tenant
Put your schedule together, so you know how long it will take you to complete the works and decoration of the property. These dates must fall after completion. Sales can fall apart even at the eleventh hour, so make no commitment to a tenant at this stage. However, it’s worth having all your paperwork and advertisements ready to go when the completion is confirmed. In some places, you need to be a registered landlord or have a license. You might need a special bank account to hold a tenant’s deposit. Find out everything you need to do and get to work completing it.
To find your tenant, you might simply rely on word of mouth. In some areas, a simple sign outside the property will attract all the applications you need. Pop a card in the local store and use your local classifieds ads. If you want your tenants to be background checked, then you might need to register with a service that can do that for you. There is usually a charge. Consider passing this cost onto the applying tenant.
Drawing up a contract isn’t necessary. You can usually find a template tenancy agreement online or in your local post office. Be sure to carefully list all of the fixtures and fittings together with comments on their condition. You might even take photos. Your new tenant must sign to say they agree to all this when they hand over their deposit to you. The contract must also include the monthly rental amount, the date it is due, and how you will collect it. It’s best to clarify what might happen if payments are missed. Remember to check your local area regulations and laws for this part.
You’re A Landlord!
It’s not all hands-off at this point. You should still be in close contact with your tenant to arrange maintenance and checks of the property. But aside from that, you can sit back and watch the rental income pour in each month. Perhaps you’re ready to take on property number 2?
Disclosure: This is a contributed post.