With all the home renovation shows, the loosening of ADU regulations, the teady economy, historically low interest rates, and millennials’ preference for renting, the number of people who own income property has increased since the Great Recession.

But as an agent with limited time and resources, the question is this:

How do you minimize your exposure (time & expenses) while still encouraging your clients to begin their discovery process and unleash their “inner investor spirit”.

Here’s a quick “primer” for your clients before you commit resources so they can start their educational process with wide-open eyes. 

Better to be at the beach with a glass of wine than working on a transaction that “can’t / won’t close”!

The post draws from an article by James Royal on bankrate.com. I’ve shortened it and added a “twist,“ which is from the perspective of an agent’s time and resources!

However, you can read the entire post by clicking on the link!

10 Tips for Buying Rental Property

Real estate is now Americans’ favorite long-term investment, according to a recent Bankrate study.

The popularity of real estate is at its highest point since Bankrate started the survey 7 years ago.

But should your clients invest in a rental property? Experts say yes, provided they do their homework first.

Here are 10 actions buyers should be aware of BEFORE they run you around.

1. It’s Not as Easy As It Looks

To maximize income, property requires an accountant’s eye for detail, a grasp of landlord-tenant laws, and, should they choose to manage a rental property, a landlord’s firm but friendly disposition.

While rental property is considered a “passive investment,” it’s not!

Toilets – termites and tenants are often the complaints of landlords!

2. Success Requires a Long-Term Outlook

Jeremy Kisner, a senior wealth adviser at Surevest Wealth Management in Phoenix, Ariz., owns two Las Vegas rentals.

“The way that people get in trouble with almost all investments is, they just don’t hold onto things long enough,” he says. To make money in real estate, buyers want to think long-term.

3. It’s Easy / Costly to Break the Law

State landlord-tenant laws can act like an open manhole cover for rental owners who ignore them.

Tenant security deposits are a case in point. Collecting and holding the money is not as simple as it seems.

“There is bookkeeping involved. You need to have an account for each tenant, keep that money in that account, and save it,” Hertzog says.

“Security deposit laws govern how much time landlords have to return a security deposit when the tenancy ends, less any expenses for cleaning and repair, all of which have to be itemized.”

This is only one aspect of the laws surrounding a rental property, and landlords must know many other things to avoid violating them.

4. Make Sure You’re Landlord Material

Should landlords be their own property managers or pay 6-10% of their rental income to a management service?

“They do the background check on your tenant, make sure they sign the lease and pay their rent on time,” George says. “That frees landlords to manage money, not property and tenants.”

There’s a possible downside to being your own landlord.“If you get too close to tenants and tenants have financial problems, landlords are stuck because you don’t want to evict them.”

In addition to this issue, is the client comfortable making the executive decisions that must be made in managing a property?

Will they repair or replace a failing AC or leaky dishwasher? Or will they pay for a home warranty policy to solve the problem?

5. Analyze whether paying cash or financing is better.

While buying cash is good, “Leveraging” a mortgage typically magnifies returns on both the upside and downside.

6. Budget for the Unexpected

Failure to plan for the myriad expenses of owning a rental can become a fast track to disaster.

As a landlord, you should save 20% to 30% of your rental income for upkeep, maintenance, and emergencies.

7. Remember to Renew Leases

If mom-and-pop landlords have one blind spot, it’s failing to renew tenant leases in a timely manner.

When tenants slide, getting them back on track can be challenging.

California mandates landlords give 60 days’ notice for tenants who have lived in the property for more than a year (or 30 days for less than a year), though the situation may be different in rent-controlled cities.

The landlord might also offer a new lease contract at the same time.

8. It’s all about location, location – sort of.

That old Realtor mantra about the importance of location takes an exciting turn when applied to income property. The best places with the most appreciation are where you’ll potentially have the worst cash flow with a rental.

In some areas, investors may want a higher cash flow to compensate for slower appreciation.

However, if investors expect an area to appreciate substantially, they may be willing to forgo cash flow to enjoy that appreciation.

The result: house appreciation outstrips rent growth, and houses appreciate while yielding relatively low cash flow.

9. Want long-term tenants? Consider Section 8

A sudden tenant vacancy is the bane of every rental owner; each month a rental stands vacant, landlords are out $$$.

Section 8, aka the HUD’s Housing Choice Voucher Program, typically caps the rent for low-income Americans who qualify at 30% of their adjusted monthly income.

Many landlords are skeptical of the paperwork and potential upkeep problems presented by some Section 8 renters, but older populations and persons with disabilities are excellent tenants.

Most take excellent care of the property because it is their home, and this is where they want to be. If they don’t pay their rent, they ruin their vouchers.

10. Don’t forget rental property at tax time

There’s a singular ray of sunshine that beams down upon income property owners each spring as they hunker down with their accountant to prepare their federal income tax return.

“When you have your own home, you can write off the interest, and that’s about it. With an investment property, a Schedule E tax form landlords write off nearly everything, from painting the home to changing the light bulbs.

It’s that potent combination of tax benefits and investment returns that help keep investors interested in rental properties.