Many forward-thinking individuals have recently invested in foreclosure properties with the hopes of turning them into income-generating rentals. And why not? There has never been a better time than right now to “buy low” in real estate, lock in amazing interest rates, and “sell high” in a few years when the market recovers. In the meantime, renting out these real estate investments will bridge the gap between now and then.
If it is your first experience with the foreclosure investment rental business, then you might want to keep the following things in mind.
Calculating Monthly Rent
No matter how low the purchase price was when you bought your foreclosure home, there’s still the possibility of not being able to recoup your investment if you are unable to rent the property for an appropriate amount.
First, conduct a quick but thorough market analysis of the average rent being charged in your area and for similar properties. You can do this on RealEstate.com by going to the “Find Homes” tab, entering a location, and selecting “rentals” from the drop-down menu. Second, make sure that the amount you do end up charging will be profitable for you in the end. At the very least, it must enable you to cover your mortgage payments if you have used financing to purchase your foreclosure home. Your rental amount should also be adjusted accordingly if you have chosen to include the use of electricity, water and gas in your tenants’ rent. Do the same with any other rental privileges you are inclined to offer (like cable, etc.). And don’t forget about the costs of routine maintenance for the rental home.
As a landlord, you have the right to request a credit report of any potential tenant applicant. This is a right you should definitely exercise because credit reports will give you a very good idea about whether an applicant is likely to pay on time or not … if at all. Such reports may also give you an idea of whether or not the possible tenant can manage the monthly rent without much difficulty.
You will see many samples of lease agreements online. Be sure to browse them carefully and make a list of the conditions that you believe would apply in your case. Once you have compiled a list of terms and conditions for your lease agreement, make sure to have them all checked over by an attorney. This will ensure that you are not setting yourself up for any money-draining legal loopholes in the future.
It’s imperative that you speak to your insurance agent to make sure your insurance policy has been updated accordingly.
Even the most kind-hearted landlords tend to ask for a security deposit, and so should you. Security deposits are required to provide landlords the guaranteed ability to cover any damages – intentional or otherwise – caused by a tenant. Be sure that all conditions concerning security deposits are properly outlined in your lease agreement.
Last, but certainly not the least, your lease agreement for your foreclosure investment-turned rental home should include clear and comprehensive procedures for eviction. Although an unpleasant business, it is nonetheless necessary not just for you, but for the safety and comfort of nearby neighbors as well. Make sure, however, that all your procedures comply with legal state and city regulations.