It’s not uncommon to find someone who owns not just one or two rental properties but several. Say, 10 or even 20. Or more. Why might you ask? Lending guidelines make it much easier to finance a subsequent rental unit after successfully owning and managing the first rental. Lenders want to make sure the buyer of an initial rental can afford the new monthly payments, be able to cover tenant vacancy periods and overall maintenance issues as they arise.
But more importantly perhaps, lenders won’t count the rental income from the first unit to help qualify. Instead, buyers must be able to afford not only their own primary residence costs but also afford the costs of the expenses arising from their first rental. Once that two year period passes, the rental income can in fact be used to help qualify. Instead of the second unit becoming an expense, on paper anyway, it’s income. This ease of qualifying entices real estate investors to acquire more and more real estate.
Owning rental properties brings up another issue, however. That of managing the rental unit. The first rental would be relatively easy compared to owning several properties. First time landlords must qualify the potential tenants. This means reviewing a rental application. Collecting income information to make sure they can comfortably make the rental payments each and every month. Credit and rental histories need to be reviewed. And what landlords don’t want to hear is a phone call on some Sunday afternoon while out on the golf course that the hot water heater is on the fritz and water is leaking into the garage.
A DIY owner would have to head back to the pro shop, get in the car and drive over to the unit. Then, head to the appliance store and buy a new hot water heater, order installation services and make sure the new hot water heater is installed, pronto. There may even be instances where the landlord agrees to put the tenants up in a hotel room until the hot water is turned back on.
This can add up to more than just a nuisance. Much of such maintenance issues can be addressed initially with a solid home inspection report. The inspector would be able to make note that the hot water heater is nearing its useful life. Upon receiving that information, a request to the sellers of the property could be made to either replace the unit or reduce the price of the home for the amount of installing a new hot water heater. If a home is in good shape and the inspection report comes back clean, then future maintenance issues might be allayed somewhat. You just never know.
If that sounds like a lot of work, think of what managing two or three units might look like. This is where an experienced property manager comes in. The property manager takes over all the management tasks from marketing the unit for rent to vetting the potential tenants to collecting the rent each month and fixing things when they need fixing. For real estate investors who own multiple units, you can bet there’s a property manager involved. Now the landlord can get back on the golf course and let the property manager handle that hot water heater.