This is part 8 of a series of how I paid off $95,778.5 in less than 3 years.
In 2006 I decided to purchase my first rental property. After 6 years of having a mortgage, I thought buying a second property wouldn’t be a bad idea, besides if I could get someone to pay my mortgage, that would be a bonus.
I had already done a lot of research on properties from my first property, so now I had to do research on rental properties and determine how much I could afford. I began by taking a hard look at my finances to see how much of a mortgage I could afford, because I knew that I would be making this purchase by myself. I wanted to make sure that I could afford two mortgages on my paycheck and live at the same time. Although, I would be receiving rent from my tenant, I ran a few worst case scenarios in my head, such as what if the tenant gets sick and is unable to work and not pay his rent, or what if hours get reduced at his job or what if he looses his job. I would still have to pay the mortgage regardless of my tenants situation. I knew my bank would not care if my tenant lost his job.
Something else that crossed my mind at the time was maintenance fees or condo fees. These are fees to maintain the building, these fees typically go up every year. My thought was I could increase the tenants rent every year to make up the difference. Taxes also need to be paid, so this was factored in as well.
Once I ran my numbers through a mortgage calculator, I did a pre-approval with my bank to get an accurate number of how much I could afford. Once I was approved I began my search online. I was quite comfortable with condos by this point, so that is what I decided to search for. I also read that it’s easier to rent out a condo than a house.
I hired a realtor shortly after my online search. My realtor was a referral from a trusted friend. Friends and family are often the best referral sources. I searched for new condos versus an older one. My owner occupied condo was 10 years old when I purchased it and I had to replace several items in my condo a few years after I purchased, such as my dishwasher, fridge, stove and toilet. I didn’t want to run into any of those problems again, so I purchased brand new.
After I found a condo that I liked I got in contact with my lawyer and purchased it with no regrets. My next hurdle was finding a tenant. I had a friend who recently purchased a condo and hired a rental management company to manage her property for her. I contacted Del Rental Management company. They found a tenant a few months later and my tenant moved in. Del Rental Management charged me one month’s rent and 6% of the monthly rent as their fee. They are an excellent company to work with and I would highly recommend them if you are looking for a rental management company.
In 2010 I decided to sell my rental property because I wanted to get out of debt. Although, I didn’t make a lot of money on my sale, it was worth getting out of debt. The money I made on the sale of my rental condo, I put towards my owner occupied condo. This didn’t pay it off completely but it helped to pay it down.
A few rental property tips
- Some condos have rental restrictions, do research to make sure there aren’t any
- Check vacancy rates if buying a resale, this will give you an idea of how successful you will be at attracting tenants
- Know the average rent in the area. You need to charge enough rent to at least cover all your expenses
Click here for part 9