Investing in a Rental Property? You Need to Do This First

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If you’re thinking of investing in an income-producing property, take the time to make sure you can legally rent it out. Read on to find out how. 

Real estate investment is one of the most profitable ways of investing money in today’s world. Rental properties offer long-term returns, and it’s a great way to build wealth. However, before you dive into the rental property business, you need to do your homework to ensure you’re making the right investment moves. It’s essential to ensure your investment follows all the laws in your area. Otherwise, you will be unable to rent out your investment property legally, leading to fines and potential legal action.

Know the regulations in your area

Before you even start looking for properties, you need to know the regulations in your area that govern rental properties. This means knowing the zoning laws, the building codes, and any other regulations that apply.

Local governments nationwide are increasingly implementing regulations to restrict individuals from renting out their properties for short-term stays.

Find out also if there are any homeowners association (HOA) restrictions that might limit your ability to rent out your property. It is important to know this information so you can make an informed decision about where to invest your money.

Short-term rental impact on the housing market

Short-term rentals (STRs) like Airbnb and Vrbo have increased in popularity in recent years. However, many cities have started to crack down on these rentals due to the impact they have on the housing market.

A recent article in the Harvard Law & Policy Review suggests that short-term rentals have a negative impact on the availability of affordable housing in two ways. First, when a housing unit that was previously occupied by a city resident is listed on Airbnb all year round, it is no longer available for long-term rent. This effectively takes the property out of the rental market and adds it to the supply of hotel rooms in the community.

The second impact is known as “hotelization.” Property owners have a strong incentive to list their units on Airbnb rather than renting to local residents if they can rent out a room for a lower price than a hotel room and still make a profit.

As a result, critics accuse STRs of driving up housing prices, reducing the availability of long-term rental units, and changing the character of residential neighborhoods.

Know the registration and permitting process

If you are allowed to rent out your property, you will need to register with the local government and obtain the necessary permits. Some require a home-sharing permit, some a tourist license, and others require you to pay a hotel tax and carry liability insurance.

The registration and permitting process varies depending on where you live, so do your research to find out what is required in your area. Failing to register or obtain the necessary permits can result in hefty fines. Make sure you do this step before you start renting out the property.

Determine the potential rental income

Once you are familiar with the regulations and have obtained the necessary permits, you will need to determine the potential rental income. Research the rental rates for similar properties in your area and calculate how much you can charge for your property.

You will also need to consider the expenses associated with owning a rental property, such as:

Mortgage paymentsTaxesInsuranceMaintenance and repairsProperty management fees

Understand the risks involved in owning a rental property

Owning a rental property comes with risks, just like any other investment. You may encounter difficult tenants, unexpected expenses, or a sudden drop in rental rates. Make sure you understand the risks involved before you invest in a rental property.

You may even want to consider hiring a property manager to take care of the day-to-day tasks like collecting rent and handling repairs.

Before you invest in a rental property, it’s important to do your research and understand the regulations in your area. Short-term rentals have changed the landscape of the rental market, so it is crucial to know if there are any restrictions or limitations on rental properties. Once you have ensured you can legally rent out an investment property, you need to determine the potential rental income and understand the risks involved in owning a rental property. Take the time to do your research, and you’ll be on your way to building wealth through real estate investment.

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