I am a real estate investor and looking to close on my first rental property in about 1 to 1 1/2 weeks. I plan on pulling out the equity on the property and using it to finance other deals that may come my way. I plan on taking out approximately 6-8 months of mortgage payments to cover expenses while I search for a tennant. I plan on purchasing a home warrranty for the house as well, in case there are any issues regarding plumbing, electrical, hvac, etc. Do you all have any advice for a novice? Is there anything else I should do in preparation for becoming a land lord? I am both excited and scared to death at the same time. :o
I would recommend that you make sure that it will cash flow before you do any of the things that you listed. If you buy an undervalued property you may be able to pull some equity out shortly after purchasing the property, but if the property does not cash flow then I would not recommend it. I have never had to wait 6 to 8 months to find a tenant. If it takes that long, then I would suspect that the rent is too high. I would recommend that you make sure that you have a cushion in your bank account to cover unexpected expenses and vacancies, but I think 8 months mortgage payment might be excessive if you are going to pay for a warranty. I think that for me to tell you everything that you need to take care of to be a landlord would be like me telling you everything that you need to do to drive a car. Until you have done it, you still won’t know how you are going to do.
Thank you for the advice. I have actually found a better deal, so I am scrapping the above mentioned one. There would have been $20,000 worth of equity that I could’ve pulled out, but after doing further analysis, it just wasn’t worth it. With the cost of advertising, repairing (because it needed some work) and maintaining the house, even the $20,000 would not have gone far. I have found another deal where I will walk away from the table with $7000-$9000 in my pocket and a tennant is already set to go! It’s closer to my residence, so I won’t have to travel so far to check on my property. There’s not as much equity in this one as in the other, but this one doesn’t seem to be a headache either. The owner is rehabbing the house and once the rehab is done (this weekend!) he’ll be ready to finalize the deal. I do see some positive cash flow out of this. It may not be much, but it’s better than what I’ve got going now, which is zero.
It is that important and I can never hear it enough! Thank you! ;D