Purchasing a rental property in San Antonio can be a sound investment, but you want to make sure you’re prepared for what investing in rental real estate can mean for your budget and your responsibilities. Reading through these seven tips, you should be able to evaluate your ability to move forward with your investment dreams and likewise know where you have areas that need support before proceeding with any new investment.
1. Determine If You're Ready to Be a Landlord
Investing in real estate is known as passive income. Instead of working a certain number of hours or achieving a sales goal, you set up the property, find a tenant, and then allow the checks to come to you—if only it were ever that easy. Investing in a rental property means becoming a landlord, and a landlord has a plethora of duties beyond the initial set up of the property and finding worthy tenants, which are significant enough jobs alone. Once you’ve found fantastic tenants, there’s rent collection, dealing with renter issues, and maintenance emergencies to handle—all too soon the renter is moving out, and a new tenant must be found. Providing someone’s home is a huge responsibility, and often tenants can make balancing your work and home life a serious challenge, even if the renters are "low drama" tenants who pay on time. As a landlord, you can expect to deal with one or all of the following at some point in your investment:
- Late or no payments
- Damages to the property
- Late night or emergency phone calls
- Constant interruptions.
If this doesn’t sound like something you would enjoy but still think an investment property would be a good fit for your finances, then consider working with a property manager! The right kind of property management partner can handle every aspect of a rental unit with as much or as little desired input from the landlord. At Real Property Management Campanas, for example, we can handle marketing, tenant screening, rent collection, maintenance needs, and move outs—even evictions—while you enjoy the rewards of being a landlord.
2. Higher Down Payments and Interest Rates
One of the most glaring differences between owning a rental property and an owner-occupied home is the cost of doing business: in many cases, a family home only requires a down payment of 3% whereas a rental property down payment is usually in the range of 20%. The interest rates are often higher as well, which can slow down paying off the property. The one advantage of having a higher interest rate is that you can deduct interest payments on a rental home from your taxes, but it probably won’t offset your expenses enough to be worthwhile if you’re already having a hard time affording the property.
3. Start Small!
I cannot stress this one enough: if this is your first foray into investment properties, go for simple, smaller properties like a condo or a one-bedroom home. This will allow you to stay within smaller margins and budgetary needs while you learn the ins and outs of rental property management and all that it entails. Once you feel confident in what to expect when investing, you’ll potentially have more capital to work with for the next property, already made connections with contractors, and started to establish your reputation as a landlord. On top of that, a smaller property should have an equally small mortgage, so it won’t eat into your budget as much as jumping into a larger residence.
If you’re struggling to find a property that’s a good fit for your budget and your experience level, consider working with a property manager. Expert teams know the market and can guide you toward the best property for your needs.
4. Don’t Go for the "Fixer-Upper"
Most property investors in San Antonio don’t know their way around a toolbox, and yet some still decide to start their rental property investment journey with a fixer-upper because of the low mortgage. This is a mistake for anyone who doesn’t have a background in construction and remodeling. Yes, the initial cost of the loan seems small, but the inspections, repairs, and remodeling costs could become astronomical very quickly, and suddenly your broke and you haven’t even gotten it to market yet. Fixer properties are also likely to have hidden damage you can't even see at the outset (think termites).
5. Pick the Right Location
We’ve all heard the adage: location, location, location—this is especially true for investment properties. Depending on what area of San Antonio you’re looking at and what kind of renters you hope to attract, it’s always best to be near the action. Is the rental property you’re looking to invest in near parks, restaurants, theaters, or museums? How well are the school districts ranked? What is the crime rate in the area? Is there easy access to highways and public transportation?
The other thing to consider when it comes to location is the property tax. It is difficult sometimes to find the right balance of transportation access, cultural and entertainment proximity, low crime rates, and excellent schools while also keeping property taxes low.
6. Set Realistic Expectations for Your Budget—and Profit!
If you’re new to investment properties, the budget and profit expectations can be hard to assess, so make sure you’re doing your research before jumping in with both feet. Even for seasoned veterans, a word of caution: not all investment properties are equal, and not researching the area thoroughly enough could lead to a bad investment. Make sure you consider your initial expenditures as well as saving for vacancies and emergency repairs.
This is yet another area in which a property manager could be crucial. Property managers are trained to analyze the market to find a property that will fit your budget, and they also help keep costs low for repairs and remodels through a well-established network of contractors and specialists.
7. Another Debt Is a "Danger Zone"
Now that you've been introduced to some of the more subtle implications of investing in real estate, you should consider why buying might be the wrong move for you. If you're burdened with student loans, medical bills, or credit card debt, an investment property will do nothing but detract from your ability to clear out your debt. A small amount of debt against the cost of owning a rental property is feasible, but adding property expenses to more substantial debt will do nothing but endanger your financial freedom.
A Property Partner Can Guide You
Understanding all of the facets of rental property ownership can be difficult but will ultimately help you achieve your investment goals. Real Property Management Campanas can help you get started and guide you to success if you have doubts but still want to pursue a new investment in real estate.
If you're not sure how to move forward on your property investment journey, a great place to start would be to download our FREE Guide to Finding the Best San Antonio and Surrounding Area Property Manager!