Are you renting a house for the first time? It’s normal to feel nervous. After all, landlords and tenants both experience stress when moving. As a new landlord, you must become familiar with all the legalities of leasing a property. There are numerous things to remember, so it’s a good idea to use a first-time landlord checklist.
Being a landlord is a secure investment with numerous advantages. You can earn passive income and build wealth for retirement. Consider our guide on the checklist to help you make the most of your first rental property.
- Get Pre-Approved
Getting pre-approved for a mortgage can be helpful if you’re serious about buying Nashville rental houses. You will be able to see what you can and cannot afford. Get in touch with your neighborhood bank or mortgage officer to determine the upper limit of your price range so you know where you stand. You can also use turnkey real estates marketplaces like Roofstock, which connects you with trusted partners for all aspects of the investment process, such as property management, insurance, and finance.
It’s also a good idea to talk with your lender about what kind of loan is best for you. A 15-year mortgage, for example, may have lower interest rates and allow you to pay off your investment properties faster. A 30-year loan, on the other hand, does not bind your money as tightly. You might gain from higher monthly cash flow and the freedom to use that money for your next down payment on a different investment property or an emergency fund. Knowing your criteria for residential real estate investing and your budget in advance will help the process run more smoothly.
- Research Investment Strategies
Becoming acquainted with a few investing strategies before getting started would be best. When an investment property’s expenses exceed its rental revenue, it is called “negative gearing.” A taxable loss occurs from this, which is often able to be offset by your taxable income from your job and investments.
It would be best if you also thought about your cash flow strategy. Your investment will earn more than it costs to own if it is positively geared. This also implies that the investment’s income should be greater than the mortgage payments and other outgoings. Outgoings will exceed earnings if the property is negatively geared. However, negatively geared properties provide appealing tax benefits, as you can deduct annual losses from your taxes and wait for the property to appreciate, generating positive long-term returns.
- Learn Some Industry Lingo
You’ve probably been browsing Bigger Pockets forums, reading articles from Landlordology, listening to Listen to Money Matters podcasts, and spending quality time with Investopedia. What may appear to be a plethora of industry jargon and acronyms—1031s, REI, REITs, NOI, leverage, LTV, amortization, and Cap Ex—will all become familiar territory in due course. You’ll feel more confident and better positioned to make informed decisions if you learn more about the language investors use—not just what it is but why it matters.
- Look For a Property Manager
All property investors do not use property managers, but the right one can make a landlord’s life much easier by managing the property, organizing repairs, showing the property to potential tenants, and collecting rent. This convenience does come at a cost, but it is tax deductible. To avoid these fees, some landlords prefer to manage their investment properties, especially if they only have one property to manage. It can, however, be time-consuming.
- Use Caution While Estimating Your Costs
Your running expenditures will be higher than estimated because of renovations, closing costs, unforeseen vacancies, and maintenance. You may have inflated assumptions regarding future operational costs from the start, which would not necessarily imply that your investment was bad. Some charges can be anticipated. Basic running expenditures, closing charges, and other financial assumptions like real estate taxes, management costs, and insurance are among them.
Other costs are unforeseeable and come with the territory of owning rental property. We recommend keeping a minimum contingency fund of 1-2% of the purchase price.
- Know Your Target Renters
The type of property you purchase should be appealing to your target renters. To attract families, look for properties near parks and schools. If you want to rent to young professionals, look for properties in inner-city suburbs near bars and restaurants. To target the university student market, look for properties near universities.
- Location
As an investor, you should consider location when making a purchase. Is the city expanding? Is it an economically diverse country? How are the schools, and what kind of amenities are nearby? What about the surrounding area? Do some research on the market(s) you’re interested in (this can be a lot of fun and exciting) to get a sense of what’s happening in the area. You can even talk to a local property manager about the rental market dynamics.
- Set A Few Goals
These don’t have to be rigid and will probably change as you gain experience in residential real estate investing. By outlining your priorities up front, you’ll streamline the decision-making process and prevent analysis paralysis while sifting through the plethora of investment property alternatives.
Bottomline
For newbies, purchasing their first rental property may be thrilling and worrisome. One of the most valuable advantages you can give yourself is to seek out education, community, and new technology that streamlines processes and allows for better decision-making. This is a journey; you don’t have to go alone.
