The idea of becoming a landlord and owning rental properties holds a lot of appeal.
You’re always hearing stories about people who buy their first rental property and over time can turn it into a real estate empire. It is true that real estate is an excellent investment vehicle in many cases, but it’s not without challenges.
These challenges can be especially overwhelming with rental properties. There’s a lot to think about and more to the process than just buying a property and finding tenants. While there are entire books written on the subject, the following are some of the biggest things to think about before you ever buy a property.
If you’re used to working for a company and having your taxes withheld each pay period, you might start to feel very confused about taxes once you buy a property. There are so many different considerations when it comes to tax planning for real estate investors.
This year ushered in a lot of changes because of the new tax act signed into law by President Trump as well. While some of the changes are beneficial for real estate investors, it’s complex and leaving even experienced landlords scratching their heads.
Before making a property purchase or doing anything else, work with an advisor who can help you understand what your tax situation will be, and the best route to take.
Just like you may need to speak with a tax advisor, it can also be useful to talk to a lawyer about the landlord-tenant laws in your state and city.
Depending on where you live laws and provisions can cover everything from security deposits to how much notice you have to give before visiting the property.
There are also federal laws and fair-housing requirements to consider.
Can You Live Near Your Rental?
If you don’t live in an area that’s good for renters and in-demand, it could be a problem in your quest to become a landlord. It’s ideal for landlords to live near the properties for a multitude of reasons.
If you live nearby you can check on your property easily, and you can manage repairs and tenant calls more easily.
If you don’t live near your property, you’ll likely have to factor in the costs of hiring a property manager. This can get very expensive for first-time landlords.
What Type of Property Will You Invest In?
Not all properties are the same, and not all situations are going to be right for you as a first-time landlord. There are single family homes, condos, apartments and multi-family units.
You have to think about the cost of the properties, but even more important is what you’re hoping to achieve regarding cash flow. It’s not all about bringing money in, either. If you’re going with a bigger or multi-family property, you have to think about how much big repairs are going to cost.
It’s also different and sometimes harder to finance multi-family buildings.
Finally, as was touched on above, taxes and new tax laws have been in the news in the past few months. There are specific tax deductions and different situations that will apply to different types of properties. This is something you can talk to an advisor about.