Are you considering buying an investment home as a rental property?

Keep in mind that real estate markets are highly localized. Even in a small city, there may be a neighborhood where home values are consistently growing, yet just down the road, another neighborhood may have leveled off. Historically, though, investments in real property in Texas have performed well and are fundamentally solid.

First, ask yourself if you’re willing to become a landlord:

• Do you have experience with tenants?
• Is there a steady stream of tenants in the area?
• Are you going to be close enough to get to the property in case of an emergency?
• Who is going to handle repairs and maintenance?
• What insurance should you get?

For a rental house, it’s obviously of primary importance to keep tenants in the property. Almost as important is to make sure that what the tenants pay covers your expenses of owning the home. These expenses should include mortgage, tax, insurance, and maintenance. If you can break even, you enjoy available tax benefits and profit from the overall appreciation of the property. Additionally, rents tend to go up over the years while your mortgage payment, assuming standard financing, is fixed.

Your insurance coverage will be substantially different as well. In addition to items covered by a typical homeowner’s insurance policy, landlord insurance can protect you from loss of income in the event that the property becomes uninhabitable, or during a tenant/landlord dispute.

When you’re interviewing a Texas REALTOR®, find one who specializes in investment property. Your wants and needs are much different from a retiree or a first-time homebuyer. Your REALTOR® can provide some history about the neighborhood, as well as give you a pretty good idea as to the estimated cost of repairs.

Once you’ve acquired the property, consider hiring a property management company – particularly if you’re not located close to the property.  A property manager can screen tenants, collect rent, inspect and maintain the property.

Another option is to purchase a home warranty for the property, which will cover the appliances, electrical infrastructure, and the plumbing. These warranties are typically affordable and give you peace of mind. Be sure to read the policy to know exactly what is covered.

There are pros and cons to owning rental properties, but if you’ve got what it takes and your financial situation allows for it, it’s still a great way to accumulate wealth.

Source: Texas Association of Realtors®