Buying your first investment property is an incredible achievement! Whether you completed the closing or are still in the planning stages of how to invest, the three commonly asked questions in this post will give you the information you need to know as a new landlord.
Question #1- What are the qualities of a good landlord?
1. Understands their lease terms and its obligations for both themselves and the tenant.
2. Maintains their property up to all building codes and makes sure the tenant is respectful of the property itself and any other tenants.
3. Communicates with tenants in a businesslike and professional manner at all times.
4. Promptly handles all maintenance requests for a tenant. Landlords can easily forget there is a human being living in their property and just look at them as rental yields. This is not fair and a good landlord understands that even if the tenant signed a one year lease, that is their home for a year and they deserve to have their property well maintained.
Question #2- What should new landlords expect to earn on a yearly basis in their first 5 years? After that (typical yearly earning)?
Real estate is entirely dependent on the specific deal one is investing in. No two investors will earn the exact same amount of money. Overall, real estate investments fall into “cap rates” which is the expected return on investment (ROI) an investor should receive from a given deal per year. Cap rates are linked with interest rates and other investment opportunities in the market at a given period of time.
Today’s environment is ultra low interest rates, thus current yearly income will be lower than in past history. A rate of return of 2 to 3% is what one should be looking for. Five years from now it is possible that this will double to 6% which is more normal.
Question #3- How do landlords become wealthy? Is it the recurring monthly revenue or property appreciation?
Both! Landlords become wealthy over time as real estate is a long term endeavour. In saying this, as the years go on, a savvy investor can become wealthy from both monthly revenue and property appreciation. As a landlord’s properties appreciate, many refinance their properties which means they take out a new loan against their asset at the current market value. This makes their loan higher, driving down their monthly revenue, but this earns them a large amount of cash up front while continuing their ownership of the property.