In this house-flipping, fixer-upper housing market, it seems to be more and more common to hear of people buying a second property and renting it out as a source of secondary or passive income.
Even if the rental-to-be is listed low, how can you know if the payoff will be worth the investment? Start by asking yourself these questions.
What is the timeline from renovation to renters?
Rental properties are rarely turnkey. Once you figure the time and expenses you invest into the renovation, you may be waiting a while before you break even and even longer to turn a profit — assuming, of course, your tenants are ideal, and you don’t have to put that money back into repairs or maintenance.
How much time can I commit to caring for a second home?
Being a landlord is a 24/7 gig. From midnight calls to midday delays for big unexpected repairs, you assume responsibility for the majority of issues that arise in your rental property.
Can you accept the risk?
The potential reward of leasing is high, but the risk is arguably just as high. From permanent damage to negligence to late- or non-payment, tenants are always a wild card.
While it’s highly possible you can have a thorough vetting process and find yourself landlord to perfect tenants, you need to account for worst-case scenario when it comes to calculating this risk.
Do you understand tenants’ rights?
Tenant rights differ from state to state, but by-and-large, the laws that are in favor of tenants over property owner could mean big risk to you if you don’t fully understand them before putting ink to paper. For instance, in Kansas a tenant can violate the lease twice before being given 30 days notice to move out— and only after that 30 days can a landlord file for eviction.
In the end, is the rental payment you’re receiving worth the time and energy you’re about to invest? If you are a people person who thrives in changing environments, loves projects, and is handy around the house then this may be just the task for you.
But if you’re more interested in low-maintenance ways to stretch your income, there are many other opportunities to do so. Next week, I’ll explore some of your options and opportunities for finding a “side hustle” that’s perfect for you.
Kat's Money Corner is posted on Dollars & Sense every Tuesday. Kat Hnatyshyn, when not blogging or caring for her little ones, is a manager with CommunityAmerica Credit Union. For more financial chatter, visit http://communityamerica.com.