4 Things To Consider Before Buying Rental Property

Did you know that approximately 41% — or around four of 10 — of the 50 million or so rental housing units in the U.S. are owned by individual investor landlords?  

Owning real estate can be a great investment. You’ll benefit as the property appreciates in value over time, and you can also enjoy the passive monthly income from tenants renting your units. 

But just because you can invest in rental properties doesn’t necessarily mean you should. How can you tell if you’re ready to take the plunge and buy one or more investment properties? 
Continue reading to learn about four things to mull over before buying a rental property.

1. Can You Afford It?

According to Statista, the average cost of a new home in 2022 was $543,600. That’s up more than 38.7% from just $391,900 in 2020. So, the question you need to ask yourself is whether or not you can afford to buy a rental property. Investing in rental properties isn’t for everyone. If you don’t have the financial wherewithal, what should be a blessing will be an albatross. Be honest with yourself. There are other things to invest in if real estate isn’t for you right now. 

2. Is Your Debt Situation in Check?

Did you know that the average American had a debt load of $96,371 in 2021? That tally is up 2.9% compared to the average debt loan of $92,727 in 2020. If you have a huge debt load, get that under control before investing in rental real estate. Remember that the cost isn’t just the purchase price. You need to have money set aside for maintenance and repairs, for instance. 

Also, consider that if you must apply for a mortgage, you’ll have difficulty qualifying for a loan if you’re in debt. Prospective lenders will doubt your ability to meet your financial obligation. And adding a mortgage for a rental property to an already formidable debt load will simply be more stressful than it’s worth for you. 

3. Can You Manage a Rental Property Yourself?

Another question you need to ask yourself is whether or not you can, or want to, manage a rental property by yourself. Many people do it independently, but there are advantages to hiring a property management firm. It’s about delegating tasks to a third party with the experience and expertise to manage properties. If you want to be an owner-landlord, you’ll be on your own.  

You’ll have to handle maintenance and repairs, advertise vacant units, interview and vet would-be tenants, collect rent and follow up on people who don’t pay on time, handle tenant queries, and do many other things. Do you want to wear a bunch of hats every day? Do you want to see all your free time go out the window due to management duties? Managing a rental property is a full-time job. A property management firm may charge between 6% and 12% of the monthly rent for its services. But if you want to own rental properties and still have a good work-life balance, then the cost to hire a property manager will be money well spent. 
4. What Type of Rental Property Should You Buy?

You’ll want to look into what types of rental properties are available and which ones interest you most. Do you want to buy single-family residences? Are multiplex units more to your liking? There’s no right or wrong answer. It’s about what makes the most sense to you and what’s available in your region. You’ll want to know, however, that multiplex rental properties are more likely to achieve cashflow-positive status than single-family rental properties. 

If you’re thinking about buying a rental property, you’ll want to consider the four questions above. The long-term prospects of owning investment properties are positive since your real estate will likely grow in value. But do your homework to ensure you’re ready to take the plunge.