If you are looking to plump up your financial portfolio, you may be looking into purchasing your first investment property. There are so many benefits that come with owning an investment property, from being able to weather financial crises to taking advantage of lucrative tax credits.
Before you can start enjoying those perks, you need to take care of some initial steps to get your property up and running. So to help you out, here are some rental basics, courtesy of Range Real Estate.
Purchasing Your First Investment Property
Buying a rental home can be a more complex process than purchasing a primary residence, especially when it comes to acquiring financing. Lenders tend to be more hesitant about offering loans for a home that you do not plan on occupying, so make sure your credit is in top shape before you apply.
In addition to financing your investment property, you may also need to consider funding any repairs that need to be completed before you begin renting out your home. You can use loans or your own savings to cover repairs and upgrades, but you need to weigh the costs of each project carefully for ROI. Your real estate agent can give your professional insights into what upgrades might be worthwhile and which ones you should skip.
Making sure your new VRBO business is by the book
Now that you’re ready to set up your new rental business, there are a number of considerations when it comes to the entity type. This process is needed in order to create a legal business entity with your state. Each entity type has pros and cons, although forming an LLC is a popular option.
Business owners who select this entity type often do so because of the flexibility with this entity type compared to a more traditional type such as a corporation. Another advantage of this entity type over some of the 12+ options recognized by state institutions is the separation of business and personal assets. This is beneficial when setting up a business bank account and collecting funds, recording costs and expenses, and much more.
Setting Up Your New Investment Property
How you do this will depend on whether you plan to operate a short-term or long-term rental property. If you would like to flip your new home into a vacation rental, Logify notes outfitting it with some basic furniture and necessities is the best way to net those positive reviews that can be so important for attracting future bookings. You can maximize your returns on this initial investment by mixing in budget-friendly new furniture with low-cost second hand finds, but try to focus on providing enough storage and space to keep travelers comfortable.
Managing Your New Investment Property
If you plan on turning your investment property into a short-term rental, you may be able to get away with self-management, especially if you have some professionals to help you out. For example, for a residential rental, have a handyman or appliance repair pro you can call in a moment’s notice if the fridge stops working or the dishwasher goes bust. For your vacation rental, you may want to employ a professional cleaning service to keep your property tidy for guests (as GuestReady points out, you can even charge cleaning fees to offset costs).
Having people you can count on for maintenance and cleaning frees you up to market and manage your listing using a rental site, to save yourself the time and costs of hiring a professional property management company. Plus, travelers typically look online when they are booking vacation rentals, so you should have an easier time keeping your property booked.
If, however, you prefer to set your property up as a residential rental home, then using property managers is likely to be your best bet for marketing your rental listing, maintaining your home and managing your tenants, without any additional stress or time commitments.
Owning a rental property can provide financial security and freedom, but it can also provide some challenges for novice landlords. So make sure you take the right steps to secure, set up and manage your investment property from the start, so you can max out your profits.