Do’s and Don’ts of Buying a Second Home to Rent
Even though there are many financial benefits of investing in rental property, it also comes with certain risks. Deciding when the best time to buy a home is, searching for the perfect property within your budget in the desired location, and then finding ideal tenants who will pay their rent on time is not easy. In addition, you’ll have to handle taxes and maintenance costs and be a good landlord at the same time. To help you understand all the steps and make the whole process easier for you, we’ve created this list of do’s and don’ts of buying a second home to rent. Read it carefully and act accordingly to avoid stress and some common mistakes people make.
Have a clear purpose in mind
When you’re buying a second home, you must have enough reasons to do it. Collecting rental income is great, but you should know the purpose behind earning the extra money. Then, you will have a clear focus while searching for the right property. You should have a plan for what you’ll do with this rental income. For example:
- Saving it for your retirement
- Reaching a particular personal goal after saving a good amount (such as traveling the world or fulfilling another major wish)
- Planning to reinvest in another rental property
Research the market
Dedicating some time to conducting the necessary market research is crucial before investing in real estate. Consider rental demand in the area, as well as these features:
- Easy access to main roads
- Availability of public transport
- Employment opportunities
- Availability of good schools
- Proximity to commercial areas
- Recreational resources
- Entertainment facilities, etc.
Researching all of these factors will ensure that you are investing in the right home. Furthermore, this is a crucial step because you want your property to be attractive to renters.
Consider the home’s resale value
You want to invest in buying a second home to rent today, but you may choose to sell it tomorrow, so always think about the future as well. That is why it is essential to find a property that has excellent resale potential. Many factors will influence your home’s resale value, but primarily that’s the location of the house, the neighborhood, home features, and the home’s condition, all of which you can determine with the help of a good real estate agent. Keep this in mind and consult a reliable professional before making such a substantial investment. You need to find a house that will benefit you now as a rental, but that can also earn you a profit after resale in the future.
Don’t underestimate the importance of a reliable real estate agent
Some people believe they can save money on an investment property by not hiring a real estate agent. However, that is far from the truth. Usually, you won’t even pay for the buyer’s agent; the seller will. The agent’s commission will be built into the price of the home. Real estate contracts are very complex, and if you choose to go through them without a reliable agent, you may even end up paying for things you don’t have to (the things that the seller usually pays for).
Don’t assume that being a good landlord is easy
Each rental property is a business that requires time and energy if you want it to be successful. As a landlord, you’ll need to keep up-to-date on rental laws. Also, you’ll be legally required to maintain a safe and habitable home for your tenants. Moreover, you’ll be responsible for advertising the property and organizing viewings. A tenant paying top dollar expects (and deserves) an instant response to any problem that may arise, no matter how large or small. So, you need to know if you can do some minor repairs yourself and have a specific plan for major repairs and home improvements. You’ll also have to collect rents and deal with all kinds of tenants, which requires good communicational skills and patience.
If you don’t like the prospects of managing your own rental, you can hire a property manager. That can save you a significant amount of time, but you must be aware of financial aspects as well.
Don’t buy anywhere without understanding the pitfalls
When buying a second home to rent, you must be comfortable with risks and understand potential pitfalls. It’s crucial to know what you’re getting into right away. So, you need to identify what could go wrong and what issues you may face in the future. Here are some important questions to ask:
- If the home loses its value, how will that impact you?
- If the interest rate rises, will you still be able to hold onto your investment?
- What is your plan B in case you can’t re-mortgage?
- Will you be able to afford the property even if you have a significant vacant period?
- Will you be able to pay for regular maintenance costs?
- What about some unexpected costs? Do you have an emergency fund to rely on when needed?
Florida is excellent for investing in rental real estate
It’s always a good idea to look for a property in a pleasant climate, property with a waterfront, a serene view, or property close to a college campus or a good local school. The home you’ll buy should strike the right balance between convenience, practicality, and luxury. Therefore, some places are just better than others when it comes to investing in real estate. For example, Florida is a great state for buying a second home to rent, as that move is very likely to pay off in the long run. This state has a great perspective, consisting of many modern cities that attract a wide range of renters with plenty of available amenities.
If you’re considering Florida, you should choose one of the popular locations. Cities with the best prospects for rental investment are Miami, Orlando, Sarasota, Tampa, Jacksonville, and Cape Coral. All of these places have something in common – they attract people of all ages, from teenagers and students to young families and people in retirement. These locations will always be popular because everybody likes to enjoy the warm weather, safety, good schools, excellent healthcare, and plentiful jobs.
The Bottom Line
Buying a second home to rent can be a rewarding experience that can provide you with a range of financial benefits only if you’re aware of both benefits and challenges that come with it.