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Acquiring a rental property in Chicago can be very rewarding if you have the time, energy, and money it may require. Buying a home for rental income has a different set of parameters than buying a home to live in, so here are some aspects to consider that will help to make this decision smooth and stress free.
Are You Planning to Do the Work Yourself?
When you purchase a property to rent out, you’re not just the landlord and owner — you’re also the gardener, lumber handyman, etc. You’re responsible for all the repairs necessary to keep the home in good living condition. You may be expected to take immediate action if a problem arises, so you’ll need to be in the position to do that. Admittedly, you can hire a property management company to deal with some (or most) of that, and you can find a handyman that will be on call to handle repairs. But each of those services will eat into your profits. Be sure you’re either willing and capable to get your hands dirty, or you’re okay with sharing your profits with the necessary help.
Do You Have a Contingency Fund?
Before you buy a rental property, it’s a smart idea to be relatively debt free with a contingency fund earmarked for unforeseen repairs. If the house is tenant-occupied and something needs fixing, you’ll be expected to address it immediately. If you purchase the property but don’t find a tenant right away, you’ll have a monthly mortgage payment to cover. Moving forward on a rental with high debt and no savings can turn into a nightmare.
The Mortgage Options are Different for Rentals
Getting a loan to buy an investment property is a little different than getting a loan to purchase a home you’re going to live in. Generally, when you buy an investment property, the lender will require a down payment of 20%, because mortgage insurance is not an option for this type of loan. Also, your rate will be higher for an investment loan than it would be for a traditional mortgage. Be sure to shop around to see what loan will fit your scenario best.
Skip the Fixer-Uppers
It may be tempting to buy a fixer-upper for your first rental property, but you may only be thinking of the upside. A fixer-upper can take many months to renovate and will almost assuredly cost more than buying a house that needs only minor repairs. The primary goal should be to have the property ready for renters as soon as possible to speed your cash flow.
The costs associated with buying a rental property is one consideration, but so is the location of the property. You want something in a location that is desirable to prospective tenants. You also want to do your research on local school districts, crime rates, the job market in the area, and the amenities the neighborhood has to offer. The more desirable the location, the easier it will be to find tenants that will want to live there.
Finding the Best Tenants
Finding the best tenants is one of the most challenging aspects of being a landlord. You should be vigilant when interviewing potential renters. Do a credit check, ask for references, and verify employment. Have a clear lease in place, that spells out the rental terms so there is no confusion later on.
Purchasing a rental property can be a great investment when done correctly. Like with any investment, you’ll want to do your research, have realistic expectations, and make a confident decision.