Do you have money you’re looking to invest? With rents on the rise in the Denver-metro area, purchasing rental property makes sense – but only if your finances are in order and you’re ready for the responsibility.
Before jumping into the fray, Investopedia offers these questions to consider:
Are you sure you want to be a landlord? Yes, those rent checks will be nice rolling into your mailbox, but what about the late-night calls when a pipe bursts? Investopedia notes that the most profitable landlords do their own repairs. “Do you know your way around a toolbox? How are you at repairing drywall or unclogging a toilet?” Investopedia asks. You can hire a team of workers one day, when you have a host of properties, but for now, think small – and consider yourself Mr. or Mrs. Fix-It.
Should you pay with cash or finance? “That depends on your goals,” says Investopedia. Paying with cash will ensure immediate positive monthly cash flow. But the right financing might give you a higher percentage return on your investment.
Have you found the right location? Look in a place where property taxes are low, the school district is solid, and parks, malls, restaurants and movie theaters are nearby. Also, consider the crime rate, access to public transportation and the job market in the area. “The last thing you want is to be stuck with a rental property in an area that is declining rather than stable or picking up steam,” notes Investopedia.
Are your finances in order? Lenders have more strict requirements for investment properties than those that are owner occupied. Because mortgage insurance isn’t available for investment purchases, you will need at least a 20% down payment on an investment property. Also, the budget should include homeowners’ insurance, any homeowner association fees, property taxes, landscaping, etc.
Can you move into the property for a while before renting? While not imperative, this is an excellent way to get to know the property and see what problems are brewing first hand. In addition, you will get better financing if the property is “owner occupied,” at least initially.