If you want a great passive investment idea, it is advisable to purchase a second home to use it as a rental property. If you buy your house and get a second mortgage that your tenants eventually pay off, you have supplemental income from the rent you receive from your tenants. So, what is an investment property? Is it only rental properties? The answer is no. A rental property is one form of an investment property, but the term covers anything that can obtain you some sort of income, such as either renting or flipping the house through resale in the future.
If you have made up your mind about purchasing a second house as an investment property, there are a few initial considerations that you must be mindful of before you leap.
Location
As a landlord, you will have a lot of responsibilities that you will need to handle. As such, it helps to have a property that is perhaps in the next block, rather than two hours away. If you get a call in the middle of the night about a leaky faucet or a tap that is just not working, it would seem a bit impossible for you to drive two hours out of your way to fix it.
The Financial Impact
Do you have enough amount saved up to make a down payment or pay off the property in full? When you decide on investing in a rental property for investment purposes, you need to calculate your approximate return on investment before any decision is finalized. You need to figure out just how much income you will make from the property compared to the expenses you’ll have to pay out of your pocket. Once you have all of them listed down, subtract your expenses from the income to see just what your net operating income is.
Expenses include:
- Professional fees such as legal and management fees
- Mortgage interest
- Utilities
- Insurance
- Homeowner association fees
- Cleaning, maintenance, and repairs
- Taxes
Knowing the Laws
While it is rare, it does happen that tenants simply refuse to pay rent sometimes. If that happens, you need to know the laws. There are certain states in which a grace period is required if the tenant has failed to pay rent. This means that you can essentially not evict a tenant up until the grace period is over, but you can charge late fees for late payment of rent.
Pay Taxes
In some countries, rental properties are treated differently than primary residences, and as such, you are required to report any income that you make from the rent you receive. If that is the case, you need to discuss your situation with your realtor to see just what options you have going forward.
Ready to discuss your options in the real estate world? Contact your realtor friends at AlpharettaZen to get started now.