When you decide to become a landlord or you decide to expand a property portfolio you already have, there are some important financial decisions you’ll have to make. By thinking about these specific elements of your business carefully, you can ensure – as far as it is possible when it comes to property – that you make a profit and are successful. With that in mind, here are some of the things you need to consider relating to finances as a landlord.
Choose The Right Property
One of the most important elements of becoming a profitable landlord is to choose the right property in the first place. You might think that choosing a cheap property is a good idea because it won’t cost you much per month, but if it’s cheap, you need to consider why. Is it because it’s in a bad area where no one will want to live? Is it because there are maintenance problems that will cost you a lot to put right? Investigate thoroughly before committing to anything.
Many landlords find it makes more sense to buy a more expensive property in a better area. There might not be as much potential profit, but the chances of the property being empty for an extended period of time are also less. If this is something you’re interested in, you might need to sell one of your other properties to ensure you can buy the right one, and a bridging loan from hard money lenders could be the answer in the meantime – this is another financial decision you’ll need to make.
Get The Right Mortgage
There are a number of different mortgage products available, and each one will offer a different interest rate and tie-in period and ask for a different down payment. With so many products, any landlord will need to look into as many as possible and determine exactly which one is going to work the best for them. This is not an easy task, but when you are trying to make a profit through a rental income, even the smallest difference in a mortgage can help.
Often it can be a good idea to engage a mortgage broker to help you. They will not only be able to work out what kind of mortgage is going to help you the most, but they will also have access to many more mortgages that you or a standard lender will.
Set The Right Rent
The point of renting out property is to take in a rental income that pays for the mortgage and gives you a profit on top. Some of that profit should be set aside for repairs and maintenance, and the rest is for you to do what you want with, whether it’s an income you live off or you use it to buy more property.
This is why another financial decision that landlords have to make is how much rent to charge. Too much and you’ll find it hard to get tenants; too little and you’ll easily get tenants, but you won’t make any money. To set the right rent, you need to take into account how much you’re paying for your mortgage and what the average rents are. In that way, you can make sure you are charging a fair amount but still making a profit.