Get 6 tips to buy a new home and keep the old one as a rental property.
Tip #2: Research the Rent
Never assume you know how much rent you can get for your home. In some areas, the going rent is less than what it costs to own a home. So consult with several local property managers about actual rents that investors are getting for homes similar to yours.
If there are no comparable rental properties close to your home, try advertising your property for rent at the price you’d like to receive and see if anyone is interested.
Tip #3: Estimate the Ownership Cost
Once you know how much rent you could charge for your home, subtract your carrying costs. These include all the expenses of owning and managing an investment property—not just your mortgage payment.
Get an estimate on a landlord’s insurance policy because bad tenants can destroy your home and be a huge liability if something goes wrong. Add up the cost of this insurance and your property taxes—plus, you may need to cover the cost of homeowner’s association dues, yard work, pest control, and utilities.
Use an Investment Property Calculator to make sure owning a rental would be profitable for you.
Tip #4: Factor in Vacancies
In addition to a rental property’s known expenses, always factor in the unknown by using a 10% annual vacancy rate. For example, if you charge rent of $1,000 a month or $12,000 a year, have at least $1,200 ($12,000 x 10%) set aside. That’s the minimum cash cushion you should keep on hand to be prepared for unexpected repairs or a tenant who disappears in the middle of the night.
Tip #5: Consider Using a Property Manager
I always recommend that you budget enough to hire an experienced property manager. They charge about 10% to 15% of the rent, but can pay for themselves by getting you the best rental price and saving you time. A good property manager will screen tenants, execute leases, get estimates for repairs, and take annoying late-night emergency maintenance calls.
If you decide to manage a rental property yourself, you’ll need to understand landlord and tenant laws for the state where you live.