Here's some information you should know about rental properties...
Whether you are an investor, or a homeowner considering your options, there are some basics that you need to be aware of before deciding if owning a rental property is right for you.
Because so many houses are now under water there are many homeowners who have become reluctant landlords. Most of the time they have no other choice. Unless you want to take a considerable amount of money to the closing table in order to sell the property, or you want to let the bank foreclose on you, you either have to continue to live in the house and continue to make the payments, or you have to rent it out. If you want to move, or need to move, renting out your home can be a good option.
Investors of every size have found that they can achieve a sizable return on their money by purchasing homes and renting them out. This is a good strategy. As a matter of fact, a good portion of the inventory reduction that has occured has been investor driven. Investors usually have the advantage of paying cash, but mortgages are also available for investors.
A mortgage can be the main determining factor on whether or not a rental property makes sense. This is where investors and homeowners may differ. An investor is looking strictly at return on investment. A homeowner may simply be trying to save their credit rating. A mortgage does not make a lot of sense for an investor. Unless the mortgage is short term, and for a fraction of the properties value, it will eat away at your profit. On the otherhand, a homeowner is just looking for a way to get the mortgage paid until they can liquidate the property at a later time!
Either way, the same principal is at work. Is there more money coming in than going out? You will need to estimate your annual rental income, and then subtract all of your expenses. Include your mortgage payment, insurance, property tax, maintenance & upkeep, HOA fees, book keeping, and of course, income tax. You will also need a cash pad for times that the property is in-between tenants, and for emergency repairs. You can see why investors that pay cash have the upper hand. The size of their profit may vary with competitive and economy based pressures, but they will almost certainly make a profit. The story can be quite different for somebody with a mortgage operating on the fringes of profitability.
If you are an investor with cash what are you waiting for? Seriously, put that money to work right away!
If you are a homeowner looking for a solution, consider this. Will rental income cover all of your expenses? If not, by how much are you short? Can you afford that amount? How much risk are you avoiding by carrying the property? Are you just delaying the inevitable? A rental property that is not producing enough income to cover expenses is not an investment, it is a DEBT! Future appreciation in value alone will not save the day. If you are renting out your property, and you are not at least breaking even, you have to ask yourself a serious question. Why am I doing this? In some cases this approach may make sense. In other cases, you may be doing more harm than good.
My specialty lies in my ability to navigate every aspect of my client's Real Estate holdings. I do more than just buy, sell, or manage properties. I furnish my clients with information and services that best suits their needs. I am a Realtor as well as a Property Manager. That means that I can offer a unique perspective and a wide range of advice and solutions! I deal with investors and individual homeowners. I offer a personal level of service that is hard to find. You will always deal with me directly, not with my assistants or associates.
At Five Star Real Estate I offer property management services for a flat 10% fee per month. I reasearch the surrounding market, advertise the property as available for lease, show the property, screen potential renters by doing a credit and eviction history check, prepare the lease, field all calls, collect the rents, and disburse the rent to you every month minus my 10% fee.
Even though I will handle everything for you, you should be familiar with the SC Residential Landlord and Tenant Act. Click here to read the law.
If you would like to talk, please feel free to contact me at anytime. Advice is always free! By the way, please check my Property Management Services Brochure.
Good luck - Michael