Property has shown itself to be one of the most lucrative and reliable investments on the market. A lot of people have taken to renting out their homes instead of simply selling them. This makes a lot of sense, any property that you own is an investment, but one that produces income is obviously a far better option than one that simply generates expenses. A great deal of landlords end up using their properties to supplement their career and make extra money on the side. But what if you want to take it to the next level? What happens if you decide that you want to turn your investment in buy-to-let properties into your full-time career?
Well, first you’d better be ready for a lot of work. To generate the kind of revenue that you need to turn a real estate investment into a side project to your full-time career, you’ll need to dedicate far more time, effort and money than you ever previously expected. For some people, the idea of becoming a full-time landlord is tempting, but the sheer amount of work involved can be pretty intimidating. Fortunately, you probably have a lot of the skills that you need already from your previous properties. It’s mostly a matter of expanding on them. However, if you are sure about jumping head first into the exciting world of property investment, then there are some important things that you need to consider.
Do-it-yourself?
When you rent a single property, the kind of maintenance that you’re required to do is usually pretty simple. Even if the property needs a decent amount of work, there’s nothing to say that you can’t deal with it all yourself without too much trouble. All of that changes when you take on multiple properties. You will find very quickly that dealing with the maintenance on multiples properties is simply too much work for one person. Even if the jobs themselves are pretty simple, you simply won’t have the time or energy to be constantly running between properties every time there’s an issue. The best thing that you can do is to find some reliable tradespeople who can handle the properties for you. It’s a good idea to try and negotiate with them as well. Maintenance on multiple properties could well become expensive, and while you should definitely accommodate that into your budget, you might be able to get a better deal if you’re able to offer them regular, guaranteed work. Of course, there will still be things that you can, and probably need to, handle yourself. But the last thing you want is to cripple yourself by trying to deal with every problem at every single one of your properties all by yourself. It’s important to figure out how well you can balance the financial trade off of avoiding doing all of that work.
Get smart with your finances
With a single property, money is obviously going to be extremely important but you do have a certain amount of room to avoid getting into the serious nitty-gritty of it. Once property investment becomes your only target of income, then that needs to change. You need to be totally aware of every cost of every property from the very top to the very bottom. Keep incredibly strict logs of the average maintenance costs and how much the goods for each property generally cost to replace/repair. Not only that but you have the matter of tax to contend with. Once you’re basing your income around your investments, it’s a good idea to look into things like a 1031 exchange property, which will help you save money on capital gains tax when it comes time to sell. It’s an extremely good idea to hire an accountant to help you keep track of your finances. With multiple properties, it can get rather confusing, and the last thing that you want is to start mixing up your properties and making mistakes. When a property is a side project, you have room for mistakes, when it’s your main target of income, you have no such luck.
Be selective with tenants
Now that you’re turning your role as a landlord into a career it’s time to throw all emotions out the window. Of course, this doesn’t mean that you should start turning tenants out onto the street! But instead, it means that you have to start being a lot more selective about who you choose as your tenants. Previously you might have taken people at their word that they’d be able to handle the rent, even if their income left you with some doubts. Now you need to have some very strict rules in place for who qualifies as a tenant. A good rule is to make sure that their income is at least three times the monthly rent. Not only that but it’s important to carry out thorough background checks on all prospective tenants.
When it comes to debt and credit, it makes no difference how good someone’s income is. If someone has debt that eats up two-thirds of their monthly income, then you’re going to end up with problems further down the line. You should also make sure to get in contact with their previous landlords. It might sound cynical but, when your income is on the line, you can’t rely on the word of your tenants. Find out how satisfied their previous landlord was with them and what the circumstances were around them leaving their last property. You don’t want to take on a tenant who seems reliable only to find out that they were evicted because of ducking out on rent payments or refusing to care for the property properly. It might seem callous only to focus on these things, but when you’re making your living from your tenants, you really can’t afford to be sentimental and let your emotions impact your judgement.
You can either hire an agent to take care of the background checks and the paperwork or do it yourself. There are many tools and websites that will guide you through the process. The real estate listing websites are better than ever before, leverage them to get through the process from start to the end.