Invensting in Rental Property
Date: January 26, 2023
Earning passive income from rental properties is the dream of many looking to invest in real estate. Yet, experienced landlords know managing a rental property requires an active approach. Consider whether you’ll be comfortable in the role of a landlord before adding a rental property to your investment portfolio.
Becoming a landlord requires hard work, knowledge, and time. Landlord responsibilities include paying the mortgage, property taxes, insurance, and sometimes utilities, advertising for and screening tenants, collecting rent, and potentially evicting tenants. They must also maintain the property, address any problems, and learn and follow applicable laws.
Taking care of the property and the tenants can be a 24/7 job that’s sometimes unpleasant. Carefully choosing properties and screening tenants can lower the risk of significant issues. However, being a landlord is a hands-on investment unless you hire a property manager.
Collecting rent is one way a landlord can make money from a rental property. The price of rent depends on the property’s location, condition, and features. Fair Market Rent (FMR) prices in Montgomery County, Arkansas, are low compared to the national average. For example, FMR for a two-bedroom apartment in Montgomery County is $654 per month. A common strategy is to charge enough rent to cover expenses until the mortgage is paid off, at which time most of the rent becomes profit.
Landlords can also profit through appreciation. If the property increases in value, it can be sold for profit. Alternatively, an investor may leverage their equity to make another investment. Unfortunately, while real estate tends to appreciate, there are no guarantees. This is particularly true during periods of intense volatility in the real estate market. From February 2020 to March 2022, median real estate prices in the U.S. rose by an astonishing 38%, according to Investopedia.
Be sure to consult an attorney about landlord and tenant requirements. It’s essential to clearly communicate with your tenant which rental property maintenance tasks fall under landlord duties and which are the tenant’s responsibility.
If you are considering investing in rental property or looking for a property manager, give us a call!