,A recent Bankrate survey has found that 45% of Americans earn additional income from a secondary job or side hustle – that’s nearly half our country! With a hot Real Estate market that is continuously in high demand, it’s no surprise that one of the entrepreneurial industries that Americans are dabbling in is property management. Have you ever considered investing in a home-flip to be the next Chip and JoAnna Gaines? Or maybe you’ve considered upsizing your home and keeping your current home as a rental property? Or perhaps you have considered opening up your own home to allow guests to stay in the latest, trending type of investment property; such as, Airbnb, VRBO, etc.? No matter which Real Estate investment you decide to partake in, there are some major components that you will want to think about before you start your property management journey.
The proof is in the numbers.
How does one decipher from a good investment property verses a bad one? Well one thing we know for sure, numbers never lie and this is a good start. Consider any and all costs, including, but not limited to: purchase price, restoration/rehab costs, any financing costs, and any other cost that you may be responsible for prior to having a renter in the home (taxes, insurance, vacancy costs, etc.).
We highly encourage you to use your best discretion during the purchase decision process. Make sure to factor in the numbers, condition of the home, and location. Talk to a Real Estate professional who can help you analyze the current market and crunch some of these numbers for you.
Prepare yourself for the unexpected.
Without a doubt, things happen – appliances break, emergencies arise, and people change. You want to be prepared for any disaster to happen. What if your tenant has an emergency and can no longer uphold the rental agreement? Or what if the HVAC system goes out in the middle of a hot summer? Be sure to budget yourself enough to be able to handle any emergency vacancies or breakdowns.
We all shoot for sunshine and rainbows in any situation. Truth is, not every investment property experience is like that. We want to ensure you are mentally prepared for any disaster to strike.
Gear up, investment properties take time and hard work.
Although, investment properties have a “passive income” stigma. Actually, there is a lot of time and work is put into investment properties. You may have watched a few TV shows on HGTV, and thought to yourself, “I could do that!”. You very well may be right. However, we don’t want entertainment TV to fool you in thinking property management is an easy job.
There’s a lot that goes on behind the scenes of property management. Tasks like preparing the home to be shown, advertising the property, taking the time to show potential clients the property, verifying a potential tenant’s income/background/information, making sure all costs are paid in a timely manner by the tenant, maintaining the property, cleaning the property after each short-term rental, or fixing any on-going damages/broken appliances. Just to name a few.
If any of these tasks sound like nails on a chalkboard, it doesn’t mean you should automatically back away from becoming an investor. However, you may want to look into giving up 6-10% of your monthly “passive income” to hire a professional property manager to take care of all the time-consuming tasks for you.
Does your Homeowner’s Insurance cover your investment property?
One of the biggest mistakes a Real Estate Investor can make is to assume that their current Homeowner’s Insurance Policy covers their flip, rental property, or short-term rental. In fact, most homeowner’s insurance policies have a “business pursuits exclusion”. This means if this is a part of a business endeavor or you are currently receiving income from said-property, any claim taken out could be rightfully denied by your insurance provider.
The same would hold true if you currently have a renter’s property insurance policy in place. Many think they are covered by any type of rental liability with a renter’s property insurance policy, or “landlord’s” policy. Truth is, even these types of policies can have the same “business pursuits exclusion”. Typically, a renter’s insurance policy offers coverage for six months to a year to individuals, couples, or single-family. So, depending on how long your rental is for, you may or may not be covered. Especially with the concept of Airbnb short-term rentals being a relatively new, trendy concept, many insurance carriers haven’t jumped on board just yet.
The best way to know if your next investment property will have the appropriate coverage it needs is to ask your provider. Be honest with your intentions with the property to get the most accurate coverage quote. At Choice Insurance Agency, we recognize that shopping around for insurance for your investment property can be tiresome. No need to fret, we have carriers for any type of investment property that you may be embarking on. Contact us here!
Investing in Real Estate is no joke. It can be a rewarding side hustle, and it can also be a demanding, hectic side hustle. Do your homework! There are a lot of things to learn before purchasing your first investment, and our hope is that this article set you on the right track to reaping all the opportunities that property management can offer.