10 Tips for Buying Rental Property

Should you take the plunge on a rental property? Experts offer a qualified yes, provided you do your homework. Here are some things to consider before diving in.

Buying the 'Burg note: If you've been thinking of getting into the Florida real estate market by buying a house to use as a rental property, you really should find a Realtor familiar with the market and who can guide you through all the ins and outs involved. They can refer you to various lenders to help you secure funding, refer you to contractors to get the property ready for tenants, help you lease the property, or even help you find a property manager if you need one.

NEW YORK – If you’ve been watching reruns of HGTV’s “Income Property” and wondering if it’s time to buy a rental property and become a landlord, you’re not alone.

Between our slow-growth economy, historically low interest rates, and the mood of millennials to rent instead of own, income property has been on an uptick since the Great Recession.

In fact, real estate is now Americans’ favorite long-term investment, according to a recent Bankrate study. The popularity of real estate is at its highest point since Bankrate started the survey seven years ago.

Should you take the plunge on a rental property? Experts offer a qualified yes, provided you do your homework first. Here are some things to consider before diving into income property.

1. It’s not as easy as it looks

Forget the TV sitcom stereotypes of clueless landlords. To make the most of income property requires an accountant’s eye for detail, a lawyer’s grasp of landlord-tenant laws, a fortune teller’s foresight and, should you choose to manage your rental property yourself, a landlord’s firm but friendly disposition.

“Where people who want to become landlords fall short is, they don’t realize how much work goes into it,” says Diana George, founder of Vault Realty Group, now part of Century 21.

So before you leap in, you’ll want to consider whether you have the time and skill to put into managing a rental. While rental property is considered a passive investment, that doesn’t mean you’re fully passive in managing it.

2. Success requires a long-term outlook

Jeremy Kisner, a senior wealth adviser at Surevest Wealth Management in Phoenix, Arizona, owns two Las Vegas rentals. The unit he’s held for 13 years has had two tenants and low maintenance, while the other has had three tenants in four years – the last one a costly eviction.

He’s taking the same advice he gives his clients. “The way that people get in trouble with almost all investments is, they just don’t hold onto things long enough,” he says. “With rentals, if you break even on a cash-flow basis, that’s actually not too bad because you’re paying down the principal and building equity that way. Then, you hopefully also see some appreciation.”

So if you’re looking to make money in real estate, you’ll want to think long term. As you pay down or eliminate principal over the years, you should be able to grow your cash flow.

3. It’s easy (and costly) to break the law

State landlord-tenant laws can act like an open manhole cover for rental owners who ignore them, according to Kathy Hertzog, owner of Erie, Pa.-based Landlord Association.

Case in point is tenant security deposits. It’s not as simple as collecting and holding the money.

“There is definitely bookkeeping involved. You need to have that account for each tenant and keep that money in that account and save it,” Hertzog says. “Security deposit laws govern how much time you have to return a security deposit when tenancy ends, less any expenses for cleaning and repair, all of which have to be itemized.”

“In some states, if you don’t turn that in, the tenant can go after the landlord for double their security deposit for failing to return it within the specified time period,” she says.

Of course, this is only one aspect of the laws surrounding rental property, and there are many others that landlords must know in order to avoid running afoul of them. You’ll want to be familiar with rules around eviction, fair housing and other regulatory requirements.