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HOME & APARTMENT RENTAL
Rental property should generate positive cash flow as an investment. Yes, it may appreciate in value and yes, it may just break even after tax adjustment. But true property investment generates positive cash flow. When you rent the place out, the cost of rent comes from mortgage payment, maintenance, taxes divided monthly. Since tenant for your property will cover real estate expenses of your property, tenant plays a very important role for your property.
Profit generating property attracts tenants and avoid property being vacant. For appreciation purposes, it is better to buy the lowest price property in a good neighborhood. For example, it is better to market 2bedroom house in 4 bedroom neighborhood than 4bedroom house in 2bedroom neighborhood. It is better to buy property in good neighborhood than the bad neighborhood. If the properties are built the same and one house has extra garage or specially added features, that property has more value. Properties in developing area has good chance of appreciation for profit. A marketable property has some positive features such as being close to transportation and stores. In door laundry or safety features of the property may attract tenants as well. The property can also be renovated and upgraded. The owner can raise rent for upgrading the place and the value of the building will appreciate as well.
The property can be rented out as "rental agreement" or "lease". In rental agreement, a tenants agrees to pay monthly rent on monthly basis and agreement can be terminated by giving appropriate notice by either party. For lease, however, tenant agrees to pay monthly rent for a period time, 1 year for example. The lease agreement, however, can't be broken just by tenant and owner during lease period. Lease term generates stability for both the owner and the tenant. For owners, it means low vacancy rate and for the tenant, it is stabilized rent fee for lease period. The rental or lease agreement should be in writing.
Even though renting out property can generate positive cash flow and turn to be great value with appreciation, it means landlording if you are not using property management company. Often investors use property management to manage the property instead of getting involved. This can save a lot of headaches and hassle. Sometimes, investor may choose a good tenant out of his tenant building and give them a job as a landlord. Landlord may involve plumbing, fixing, painting, etc. Property management companies do maintenance and repair, collection of rent, dealing with tenant issues such as parking, renovating, dealing with complaints, etc.
If you own a one bedroom condo and renting out the property, you will probably manage the property yourself. Landlording can be work and landlord should have knowledge and experience to deal with difficult circumstances. If a tenant fails to pay rent on time for period of time, owner may have to face the situation of evicting the tenant out of the property. It can be a very emotional experience. However, landlord has right to receive rent on time. Landlord has rights to;
The most emotional procedure the landlord can face will probably be eviction. You may not have this situation but it is something you have to be prepared for. There is lawful procedure in evicting tenant. Sometimes, it is mandated by law with law enforcement officers. Tenant has to be notified first before eviction. Owner can lose rent during eviction period which can take about a month, if security deposit has not been made by tenants when signing agreement. Since unexpected circumstances like this can arise, landlord should keep track on record of rent paid and unpaid.
Eviction is the worst scenario since the owner can lose the money. If you are involving yourself in renting the property, you should make things clear from the beginning to protect yourself. It is very important to let the tenant know what the rent policy is and receive security deposit. It is also important to educate yourself how to deal with the worst case scenario. The landlord, however, should keep a good relationship with the tenant since they are your business. Screening for potential tenant is a must since the tenant you bring can affect the property and the tenants who are already living in your building.
Anyone can rent out property and it is most conventional way of investing in real estate. Like any other investment, you should know your pros and cons in each investing so that you know how to deal with it when unexpected situation appears in front of you. And being prepared with knowledge, you can also come up with creative ways to deal with most bizarre situations.
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