When I Grow Up I Want To Be A Landlord
Lately I have had an urge. An urge to go out and buy a good deal. A good deal house.
I have been researching the pros/cons of being a landlord for about a year now, and I am ready to jump in. Well, not really jump-in, but very casually put a foot in to test the waters.
Here are some things that I have found that need consideration:
1. Interest rates: A huge thing that impacts your payment. Interest rates are relatively low right now. On a 6% $100,000 30-year fixed mortgage be prepared to pay $115,838.19 in interest alone over the course of the loan. However, currently rates are sitting at (slightly below!) 3.5% for 30-year fixed. This would mean paying a total of $61,656.09 in interest, which breaks down on a $150.51 less spent on interest vs the 6%.
2. Cost: This not only includes what you are paying to buy the house, but what will it costs you to get the house in shape to rent?
3. Property taxes: There are areas/states that are known to have significantly higher property taxes. Paying more in taxes will decrease your profit on your rental property. According to www.Wallethub.com, the average American spends $2127 on property taxes, with Hawaii's effective real estate tax being at 0.28% and New Jersey being the highest at 2.29%. These numbers are for 2016.
4. Location: This is pretty basic. If the house/property is located in a bad neighborhood, it will be harder to rent out. You may be able to get it for cheap, but how fast can you get renters in? Other location items to consider: is it near train tracks (noise)? How close is it to a highway/public transportation? Does the community have things like parks, bike paths, a good school districts?
5. Comparable Rent: What are other houses/apartments going for in the area? If the comparable rent is MORE than your expenses (rent, taxes, insurances, upkeep etc), you might want to re-think the buy.
6. Work: Are you prepared to be a handyman/electrician/plumber/collections agent? Will these services be hired out? With owning a house, work will come, even if you are not the one living there.
7. Insurance: Besides having basic homeowners insurance, will you be paying PMI? Flood Insurance? Any other "special" types of insurance for additional coverage? All of these will go against potential income generated from the property.
8. Rate of Return: Could you be investing the money in a different way that would potentially have better returns?
What are some things that you (either as a current/past landlord/real estate investor or as a person looking to buy for personal use) considered when buying properties?