It sounds like the perfect retirement plan: buy a house, rent it out, have the tenant pay off your mortgage and then use the money as income once you retire. While investing in real estate is often a good strategy, there are some things you should review about becoming a landlord before you take the plunge.
• Know what you can afford – there may be times when your rental home is vacant and you still have to pay the mortgage, so make sure you can afford the payments.
• Do a thorough background check on potential tenants to ensure they will pay on time and will take good care of your property.
• Learn the laws about landlords and tenants, and know what you can and cannot do.
• Have a list of service people to call for HVAC repair, plumbing leaks and other maintenance issues
• Find out if renting is allowed in your neighborhood
• Create a list of rules for your tenant, and figure out how you will ensure they are being followed
• Consider hiring a professional property manager to troubleshoot issues that arise and a Realtor to help secure quality tenants.
As a first-time landlord, you probably won’t be able to count your future rental income in your loan application to purchase the property. Instead, you’ll have to qualify for financing based upon your regular income and associated ability to pay any current mortgage, if you have one, as well as the payments for the rental property.
Moreover, it is prudent to have savings to cover both properties for several months of payments. In fact, your lender may require these cash reserves for a rental property. Because many traditional loan programs require the property to be your primary residence, a substantial down payment may be essential.
Look to the future when initiating loans on your current home or a new personal residence to make sure that there are no restrictions on converting that property to rental status. For example, FHA loans require you to live in your home for a certain length of time before you can rent it out. Other programs may have similar or even stricter requirements.
So, think carefully about how being a landlord will impact your life and your finances before you jump into the decision. While the added income can be attractive, monitoring someone else isn’t for every property owner. Alternately, owning a rental property could be the prime opportunity you’ve been seeking. For additional information regarding investment properties, feel free to contact me today for a consultation. I will be happy to answer any questions you may have, and/or help you find the ideal home.
Allyson Hoffman, ABR, ACRE, CDPE, CRS, e-PRO, GRI, SFR, SRES
Serving Chicago's North Shore, North and Northwest Suburbs
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Allyson Hoffman is your ultimate real estate resource for Chicago's North Shore, North and Northwest Suburbs and surrounding areas. Visit my website for detailed information regarding today’s real estate markets.