Owning a rental property can be a lucrative investment. With the right opportunity, plenty of research and the assistance of a professional mortgage team, the decision to move forward may be financially beneficial. Before you commit to putting down the funds, analyze the potential return on your prospective property. Here we highlight what you should look for when taking the next steps toward owning an investment property.
Run the numbers
Once you find a desirable property, it’s time to get down to the details. Calculate how much you will be spending per month versus how much you can expect to charge in rent. There are many online tools to compute a fair monthly fee for tenants. You may also be able to access the property’s rental history, which is a good place to begin. Compare those rates to others in the area.
Don’t cut yourself short
Too often people assume that if the rent they are charging covers their loan, they will be just fine. However, there are other fees to take into account. For instance, if you don’t escrow for property taxes and insurance in your mortgage payment, you’ll want to include both of those bills in your overall budget. And you’ll want to consider HOA fees if you purchase a condo or home that has a homeowners association.
Keep a safety net
It’s also smart to allocate money or a specialty fund for maintenance, repairs and risks. After all, you’ll never know what property issues may pop up. Even worse, your property could sit empty between renters, lowering your overall return.
If you’re careful with your research, feel confident in the team you’ve surrounded yourself with and have found a great opportunity, owning a rental property may just be for you. Like any investment, keep your expectations realistic. While the rental may not produce big monthly paychecks to begin with, there certainly is the opportunity for growth.
For more on buying an investment property – including initial questions to ask yourself – visit the Elevations blog at elevationscu.com/mortgageblog.
By Randy Kelly. Randy is a Mortgage Loan Originator at Elevations Credit Union in Boulder. If you have questions regarding mortgages, please call 303.817.5717 or e-mail
Randy.Kelly@elevationscu.com. NMLS# 299112.