After watching HGTV programming, you may have thought about buying your first rental property.  They make it look easy on TV but there are several things that you need to think about before jumping into owning a rental property.

How Handy are you?

When you become a landlord of a rental property, you will be getting calls from your tenant with requests to fix things from a running toilet to a broken dishwasher.  You could call your local handy man to make these repairs but, it will eat into your profits.

Don’t Buy A Fixer Upper

You may be thinking that you could purchase a bargain property and quickly upgrade the property and turn it into a rental property. But if this is your first rental property, that’s probably a bad idea. Unless you have a contractor who does quality work on the cheap – or you’re skilled at large-scale home improvements – you’re likely to pay too much to renovate. Instead, look to buy a home that is priced below the market and that needs mostly minor repairs.

Calculate Operating Expenses

Overall, operating expenses on your new property will be between 35% and 80% percent of your gross operating income. If you charge $1,500 for rent and your expenses come in at $600 per month, you’re at 40%.

Determine Your ROI

For every dollar you invest, what is your return on that dollar?  A 6% return in your first year as a landlord is considered healthy, especially given that your ROI number should rise over time.

Purchase Low-Cost Rental Property

The more expensive and larger the property, the higher your ongoing expenses will be. Some experts recommend starting with a $150,000 home.  In some real estate markets, you may think that it would be hard to find a rental property at that price. You might want to consider a studio condo or an up and coming neighborhood to find an affordable first-time rental property.

Location, Location, Location

Look for low property taxes, a neighborhood with low crime rates, an area with a growing job market and plenty of amenities like parks, malls, restaurants and movie theaters. Another area to consider for your rental property, would be near a college or University where there is a demand for rental properties.

Your first rental property isn’t going to produce a large monthly paycheck for a while and picking the wrong property could be a costly mistake. If you are interested in searching for a great investment property, I can help you with finding the right property from a single condo purchase to a multi-unit building. Curious what is currently available in your desired neighborhood? Start your first-rental income property search today.

Amy Pearson

Real Estate Broker

Baird & Warner – Gold Coast

amy.pearson@bairdwarner.com