Real estate investments, particularly in rental properties, have always been considered one of the best ways to accumulate wealth. Rental property investment, given the prevailing market, offers encouraging potentials in terms of return on investment, but it likewise entails costs, far above general expectations. The business of rental property requires comprehensive knowledge and understanding, not to mention dedication, if you are an investor.
First time rental property investors can be quite reckless and forget to consider the many costs that go with rental property investments or real estate for that matter. In the real world, you need to have considerable savings as back up funds before jumping in and in anticipation of surprise expenses that ordinarily accompany rental property management.
One good reason why it’s recommended to have an accumulated savings amount of six months mortgage payments (on the minimum) prior to investing in a rental property is because renters can be quite unpredictable. It is common for a unit to end up unoccupied, and will need some repair or renovation before it can be occupied again; in this case there is cost of renovation involved as well the cost of an empty rental unit. Major damage caused by tenants is unusual, but it’s a likelihood that you should not ignore.
Another usual problem encountered by a landlord is when a tenant skips rental payments; eviction can take several months to process before they will agree to leave the property so it becomes available to a possible tenant. Of course, they still owe you the amount for unpaid rental, but then how can you be so sure they can or will ever be paying you? This risk, while it can be minimized through careful screening of likely tenants, has been experienced by even the most experienced landlords.
At the same time, you need to save money for unforeseen emergencies. Septic tanks are likely to back up, appliances might suddenly stop working, or heating and cooling systems can break down. A frozen pipe requires a lot of money to cleanup and fix; even an act of nature is likely to cost you a significant amount of money. You must have sufficient savings, so that you can attend to repairs quickly, providing your tenants safe shelter as well maintaining the property in its safe, working condition.
When you keep money aside equivalent to a minimum fifty percent of a year’s mortgage payments, you do not only make sure you will be able to pay the mortgage, but that you are also ready to take on any difficulties in the future. The job of managing a rental property is very challenging, not too mention the risks involved, and for this reason anybody who is planning to become a rental property investor should have the financial capacity to handle anything that may arise without delay and in the most efficient manner.
Learn About The Author: Harvey is an avid coffee drinker and accomplished blogger. He enjoys attending industry events, writing, and having a nice cup of coffee. You can visit this valuable resource for more info about this article’s subject Tenant You can find more of his writing on the author’s profile page.