10 of 11

Write now Article Tools

Avoiding Disaster in the Rental House/Landlord Business is where I can give you some advise from the "been there, done that" arena. Yes, I heard warnings and advise about what to be aware of when dealing with tenants, but I guess I thought it would not really apply to my situation. I was wrong. Tenants often have a different mindset than the rest of the population. They must be aliens from outer space... no, ordinary people, but like ordinary people that we all are, some have a different set of ethics. Before I have people screaming at me, I want to emphasis that not all tenants are in that category. I was a tenant at one time in my early 20's. My in-laws are tenants at this time. For me, and my in- laws, just like most of you, we were tenants who paid our rent on time, and added value to the rental, rather than damaging it.

* The first thing to be aware of when buying a house to be a rental, is the neighborhood. The type of neighborhood, and condition of the neighborhood, is the type of tenant you will attract. You might think that will be solved by buying in an expensive neighborhood. But there is more to it than that.

* Just like any other real estate investment, you must be able to buy the property at a discount. 10-20% less than the going market price, is recommended, depending on the amount of repairs needed.

* The general rule of thumb is to charge 1% of the purchase price as rent. However, in many areas it will be hard to get more than $1,500 for monthly rent. This rent, high threshold differs for other areas. But just because 1% of the purchase price is $2,500, it will be hard to rent the property at that rental amount, if the top neighborhood rent is $1,500. So, you have to choose wisely.

* Your interest rate on your mortgage will be higher than for an owner occupied home.

* In order to not have to pay out of pocket for rental home expenses, you must have a monthly cash flow. Often the figure of $250 is used as minimum monthly cash flow. However, to avoid the rental to not be a liability against your income when applying for credit, the figure of 25% above the mortgage PITI (principal, interest, taxes, insurance) amount is required. In other words, a mortgage payment of $800 would have to have rent coming in of $1,000 in order for the mortgage payment to be considered break even.

* In some areas, monthly cash flow is very difficult to achieve with a single family home. It will improve in the future with payments staying the same, and rents rising.

• 1
• 2
• 3
• next page >>

Add your voice

Know something about Tips for investing in residential rental properties?
We want to hear your view. Write now!