What You Need To Know About Becoming a Landlord 

Are You Cut out to Be a Landlord?

Do you know how to use a toolbox? Do you understand the fine art of unclogging a toilet or fixing drywall? Of course, you can always hire someone to do this for you, or you can have a property manager handle this. But doing this will take a chunk from your profits. Those property owners who have learned to handle these tasks on their own will have an economic advantage.

Of course, all this will change if you have added many different properties to your portfolio. One great idea for people who own properties on the other side of the country or even further is to put together a reliable team of cleaners, contractors and handymen who can be called in to deliver results when needed.

This may not be the best idea for people who are just beginning, but as you progress in the field of real estate, you will find that you don’t need to remain local for long. If you are not the handy type and don’t have a lot of cash to spend, then being a landlord may not be the best option for you.

Pay Down Personal Debt

Savvy investors often have a portion of their investment strategy that is consumed by debt, but as a rule of thumb, this is best avoided. If you still have student loans, medical debt or kids in college, then taking out an investment property is not the best idea for you.

Secure a Downpayment

Investment properties will typically call for a much larger down payment, than those properties that will be occupied by the property owner. The 3% that you put down for the place you live now is not going to cut it when it comes to taking out an investment property. You will typically be looking at about 20% of the value of the investment property. But you may be able to take out a personal loan or some other financing assistance when making a down payment.

Find the Right Location

The last thing you will want to do is to be stuck with an investment property in an area that is in decline as opposed to a hotter area that is on the rise. A city or location that is on the rise and has a booming population is also a far greater investment potential.

Should You Buy or Finance?

Is it a better idea to buy your investment with cash or look for a financing option? This really depends on the goals of the investor. Paying with cash will definitely be better for improving monthly flow. For example, imagine a rental property that will cost $100 thousand to buy. Once you have tallied the taxes, depreciation, rental income and income tax, the buyer will see as much as £9,500 in annual earnings or as much as 9.5% annual return for their investment.

But there is a chance that financing options can provide you with a better return on investment. An investor who puts down 20% with compounding of 4% on the mortgage, will see roughly £5,580 income each year after taking out operating expenses and interest rates. While the income is much less for this option, we can see that the annual return is as high as 27.9% of an investment of £20,000, this is considerably higher than the 9.5% annual return seen by the buyer.

Beware of High Interest Rates

The cost of borrowing money may seem a bit low these days, but you should remember that the interest fee for an investment property is considerably higher than what you will find on a regular mortgage. If you do choose to finance your purchase, you will need to choose a low payment option that will not cut too deeply into your monthly profits.

Calculate Your Margins

Wall Street firms that are buying distressed properties will typically shoot for 5% to 7% returns, because among their other expenses they will have to pay for a staff. Individuals should shoot for returns of 10%. To hit this mark, you should set your rent to cover the costs and estimate your maintenance costs will be about 2% of the property value each year. Then there will be other costs to consider as well like property taxes, homeowner’s insurance, pest control, landscaping as well as other regular maintenance costs. To efficiently manage and track these expenses, you can use a property management accounting software to help you record, monitor, and analyze all financial transactions.

Invest in Landlord Insurance

It is always a good idea to protect yourself well with a decent insurance program. Landlord insurance will cover you from property damage, the loss of rent and even liability protection, which will cover the costs of tenant or visitor injury caused by some property maintenance issue. Providers of Landlord insurance in Northern Ireland, Scotland and the UK provide similar cover. All come with additional extras, for example landlord emergency cover. Property insurance in NI can be slightly cheaper than for example London, as the price of labour is less expensive. InsuranceQuotesNI are able to guide you through the many Landlord insurance NI options for Northern Ireland residents. As your portfolio grows, you should also consider the advantages of multi property insurance, another option to manage all your properties under one policy.

Consider all Unexpected Costs

It is not only maintenance and upkeep that will eat into your rental insurance. There are many other issues that can arise including roof damage due to unforeseen weather conditions, or burst water pipes that destroy the floor. You will want to plan to set aside as much as 20% of your rental income to address these costs and you will always have a bit of cash set aside for these issues when they arrive.

Avoid a Fixer-Upper

It may be tempting to eye a deal on a property that is offering you an impressive bargain that you could flip and boost the price. But if this is your first investment property, this is not a good idea for an opening move. Unless you already have a contractor, who does top-quality work for a good price or you are especially skilled at handling these jobs yourself. The best option will be to look for a good bargain that only needs minor repair work.

Determine Your Return

You will need to know exactly how much you are getting for every dollar you invest. For example, stocks should offer a 7.5% return, bonds offer a 4.5% and a 6% return is considered a good deal in the investment property game, and this figure should be expected to rise over time. Buy a Low-Cost Home

The more expensive the home you buy, the higher your ongoing expense will be. Many experts recommend that you begin with a £150,000 home in a nice neighborhood. Furthermore, experts also recommend that you do not buy the best home on the block or the worst.