Okay, you’ve decided to take the plunge in buying rental properties and becoming a Landlord. What’s the first step you should take?
You need to decide on what location you want your rentals to be in. Would they be located in “hard to rent” areas where there is a lot of crime? Would they be located in a low income neighborhood where rents must be kept low? Would they be a long way from your office or home? (Remember, you must be able to take care of those emergency repairs immediately, so living 60 miles away, unless you have independent contractors doing the work for you would not be a good idea.) Plus, you must be available to be there or take care of matters when the need arises.
Would your properties be in high ranking neighborhoods where rents are targeted more towards CEO’s and high paying officials? Sometimes these types of rentals are only short term. How long would your rentals stay empty while waiting for another tenant to come along who could afford such rent? These are things to think about.
In this day and age, with the economy the way it is, I highly recommend paying cash for your rentals. Prices of homes are cheap now with foreclosures in abundance. But if you have to get a mortgage loan to purchase a home, then make sure the mortgage payments are going to be less than your rents, and not a long term loan. (You must make at least $100 over and above your expenses for each rental unit to allow for vacancies and other unexpected expenses).
I also highly recommend buying more than one property at a time. The more homes you buy, the more it secures your investment. You need at least 5 homes to survive in this business long term. There will be many unexpected expenses, such as evictions, tenants who don’t pay, and vacancies. If you don’t have other income coming in, or have other rental homes, then you won’t be able to cover all these expenses.
Even though I recommend at least 5 homes, it is better yet to purchase at least 10 homes and more. The more homes you have, the better chance you have of lasting a long time in this business . The eviction process and lots of vacancies is stressful enough, without having to worry about where your next dollar is going to come from.
It is VERY IMPORTANT to have an EXIT PLAN no matter if you are young and just starting out, or approaching retirement age and have been in the business a long time.
There are many unexpected problems that arise in everyone’s life. Whether it’s the economy going sour, or you growing old, or bad health, you must have a “backup plan”.
Many of us hate to talk about having our burial planned out or having life insurance, but it’s something we need to talk about with our families and plan for, and so most of us do. Having an Exit Plan, or a Retirement Plan, is just as important and crucial.
