Ensure Being a Landlord is for You

Are you good at fixing little projects around the house?

You can employ someone to do all of your repairs and maintenance, from large to small work, but it will eat into your income. Investors who own several properties often conduct their own maintenance.

At the same time, you must be able to delegate tasks and understand when doing something yourself is not worth your time or money.

A seasoned investor understands debt management, but if you're just getting started, you can aspire to be debt-free as soon as possible. Holding off on investing may be due to student loans, medical debt, or helping your children pay for their own college tuition. In reality, the decision could be made for you because you won't be able to get a loan if your debt-to-income ratio is too high.

Simply add up all of your monthly debt payments and divide the amount by your gross monthly income to calculate your debt to income ratio. Instead of 43 percent, you're out of luck if the ratio is 43 percent or higher. A lender would approve a higher ratio of 43 percent in order to issue an eligible mortgage.

Have a Long-Term Investing Plan

If you want to make money in real estate, you must consider the long term. Before you purchase your first rental house, figure out what you want to do and write a real estate business plan. Remember that the long-term objectives should be focused on reasonable expectations and financial resources. Consider this: How much money do you want to put into rental properties?

How many rental properties do I plan to own?

When do I want to retire, and how much money will I need to meet my financial obligations?

When purchasing a rental property, these types of questions will help you set the benchmarks you need to concentrate on your end goal rather than any slight setbacks.

Get Pre-Qualified for a Mortgage Loan

One mistake that first-time real estate investors make is making offers on rental properties before actually securing financing. Instead, the right thing to do is get pre-qualified before you even start your rental property search. Pre-qualification helps you better understand what types of investment properties you can afford to buy. Furthermore, including a pre-qualification letter in your purchase offer shows the seller that you are a serious buyer and increases your chances of closing the real estate deal faster. Make sure to understand and meet the requirements for pre-qualification like having a good credit score, a low debt-to-income ratio, cash for the down payment, etc.

Calculate Operating Expenses

While every rental property is different, all have one thing in common: expenses. As a landlord, you should know how to estimate the expenses you’ll need to cover to keep the investment property running. Some of the most important operating expenses associated with rental properties include:

• Maintenance costs
• Insurance
• Possible homeowners’ association fees
• Property taxes
• Monthly expenses like pest control and landscaping

One of the easiest ways for a first-time landlord to calculate operating expenses is using the 50% rule. For example, if you make $2,000 per month from rent, expect to pay 50% ($1,000) in total expenses.

Open a Separate Business Account

If you put personal money into a business, including a rental property business, then you can be exposed to some potential risks down the road. For example, combining your finances can lead to some accounting as well as tax issues. Plus, it becomes much harder to keep track of income and expenses. Therefore, it’s best for a landlord to stay on the safe side and to keep your personal and business finances separate by having separate accounts. And if you’re planning to buy multiple rental properties and grow your business, remember to open separate accounts for each rental you own.

Tax deductions are one of the many benefits of buying rental property. If you own an investment property, you’re able to write off nearly every expense related to your real estate business, including the mortgage interest, utility payments, maintenance, etc. Saving double digits on taxes while building equity at the same time allows you to automatically build more in profit from your first rental property. So if you’re not aware of the tax deductions available to you as a real estate investor, get expert advice by talking to a certified public accountant about how to maximize tax deductions.