If you’ve ever listened to finance guru Dave Ramsey, you will learn quickly that one of his favorite investments is real estate. Ramsey made his first fortune wheeling and dealing in the real estate market, and even though that particular episode resulted in a Chapter 7 bankruptcy, the desire for owning real estate really never went away.
With five million homes in the UK now rented out by private landlords, buy-to-let is becoming an increasingly attractive source of income. But is it really as easy as that? If you own a second property, or are in position to buy one, there are some things you should consider before becoming a landlord. Bear in mind that it’s not for everyone!
- Finding the right property is not easy. If it was, more people would be doing it. It is recommended that you use the services of a Realtor who specializes in investment property. Your needs for an investment property are much different than they were the first time you bought a home. An experienced Realtor will recognize this and be able to select properties that fit your needs financially – not necessarily for your own living arrangements.
- In a perfect world, your rental property would always have tenants, nothing would ever break and you would dance your way to the bank each month with the rent check. You might as well face the reality; there is no perfect world when it comes to rental properties. Your rental property will require repairs whether they occur naturally or your tenants break something. Tenants expect things to work. In fact, that’s why many people would rather rent then owned. Count the cost before you decide on being a landlord.
- Your insurance needs will be dramatically different than they are on your primary residence. Landlord insurance can protect you from the loss of income when you lose tenants. No one will look after your home like you will so don’t have that expectation with your tenants. Vandalism, fire, floods, and all sorts of natural disasters can have a serious impact on you financially. Make sure you are properly insured.
- Being a landlord is difficult, but even more so when you don’t live in the same town or city as your property. When you live far away from your property, it’s difficult to do monthly inspections on your rental property or attend to any emergencies. Remember – the phrase ‘out of sight, out of mind’ comes into play when you are a long-distance landlord. There is risk in owning rental property and there is no sense adding to it by living 500 miles away.
Bottom Line
Owning real estate for investment purposes and income purposes can be very lucrative. It can also be very expensive. This is why you should be in a position to pay cash for your property.
Imagine having a mortgage on your rental property without a tenant and having to make that monthly payment out of your monthly budget. As with any investment there is risk and rental property for income is not for everyone.