A buy-to-let property can be a great form of passive income. However, many people are cautious about investing in property due to the risks. Such risks can include having to spend huge amounts in property repairs, not being able to find a tenant or taking on a tenant who doesn’t pay their rent.
Fortunately, there are many ways of reducing these risks. Below are just some of the ways to make investing in real estate as a landlord less risky.
Don’t overspend on property
Be careful of financially stretching yourself when buying property to rent out. Remember that your monthly mortgage payments will affect how much rent you need to charge. If you’re paying high monthly mortgage payments, you’ll have to pay higher rent to cover this. A larger down payment may be able to help reduce your rates, but you similarly don’t want to spend too much upfront so that you have no money to adequately renovate and repair the property.
Invest in a property inspection
A property inspection will help you determine whether the property has any hidden damage that could lead to expensive repairs in the future. It’s worth investing in a property inspection before you commit to buying a property – this way you can back out if the property looks like it’s going to be a money pit. Make sure to hire a professional home inspector to carry out the inspection and choose the appropriate home inspection plan (some inspectors will be able to carry out more detailed inspections than others).
Keep some savings aside
It’s worth having a fund of a couple thousand dollars set aside that you can dip into if you need to pay for emergency repairs or periods of no rent (such as missed rent or property vacancy). A lot of landlords don’t set aside this money and then end up falling behind on mortgage payments or having to take out extra loans. Be wary that some big repairs such as a new roof or foundation repair may still require borrowing extra money as they may require setting aside too much savings (you can usually avoid having to pay for these big repairs by using a home inspection to avoid such property).
Use a property management service
There are many estate agents such as Madison Fox Estate Agents that offer property management services. Such companies help source tenants for you in a timely manner to avoid periods of vacancy, and are able to undertake a vigilant vetting process to ensure that you take on a reliable tenant. Some of these companies are even able to arrange repairs for you, although you’ll typically still need to provide funding for them. Bear in mind that you will have to pay a monthly fee for this service.
Consider landlord insurance
Landlord insurance offers much of the same cover as home insurance, but also provides extra cover specifically for landlord-related issues such as loss of rent or damage to property caused by tenants. You will pay extra each month for the benefit of this insurance, but it could reduce the need to set aside as much savings for disasters. Compare landlord insurance rates here at Investopedia.
* Contributed Content – Reducing The Risks Of Rental Property Investment
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