2b:["$","$L2c",null,{"category":"$2d","relatedArticles":[{"id":"cG9zdDo0NjI0NQ==","databaseId":46245,"postId":46245,"author":{"node":{"id":"dXNlcjo1Mw==","databaseId":53,"userId":53,"avatar":{"url":"https://secure.gravatar.com/avatar/e108c21a7f5933aad20a2fed390a87d8?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Amanda Dixon is a personal finance writer and editor with an expertise in taxes and banking. She studied journalism and sociology at the University of Georgia. Her work has been featured in Business Insider, AOL, Bankrate, The Huffington Post, Fox Business News, Mashable and CBS News. Born and raised in metro Atlanta, Amanda currently lives in Brooklyn.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Amanda","fullName":"Amanda Dixon","lastName":"Dixon","name":"Amanda Dixon","postCount":{"pageInfo":{"offsetPagination":{"total":184,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"adixon","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybToxOTkwNA==","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":19904,"categoryId":19904,"link":"https://smartasset.com/real-estate-investing/articles","name":"Real Estate Investing","postCount":{"pageInfo":{"offsetPagination":{"total":61,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"real-estate-investing","ancestors":{"nodes":[{"name":"Mortgage","slug":"mortgage","__typename":"Category"}],"__typename":"CategoryToAncestorsCategoryConnection"},"parent":{"node":{"name":"Mortgage","id":"dGVybTo4Ng==","slug":"mortgage","__typename":"Category"},"__typename":"CategoryToParentCategoryConnectionEdge"},"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$2e","date":"2023-03-13T13:41:40","excerpt":"

\n","featuredImage":{"id":"cG9zdDoxNzAwMzI=","databaseId":170032,"altText":"Landlord handing keys to a renter, having determined how much to charge for rent.","date":"2022-11-08T13:00:15","fileSize":43960,"mimeType":"image/jpeg","modified":"2024-09-13T14:38:53","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2016/03/charge-rent-1-1.jpg","__typename":"MediaItem"},"modified":{"datetime":"2024-9-19","readable":"September 19, 2024"},"multipleBylinesByRole":{"editedBy":{"id":"dXNlcjoxMzY=","databaseId":136,"userId":136,"avatar":{"url":"https://secure.gravatar.com/avatar/1d295f71ad5f26fc505155b8d7e5e2a0?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Jeff is a Writer/Editor for SmartAsset. He's an expert in a variety of personal finance topics, such as investing, banking and retirement. Jeff has received his JD and MBA and has been featured in a number of publications, such as Investopedia, The Street, Forbes, Yahoo! Finance and more. 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Renting out your house might be worth considering, especially if you’re ready to relocate and you’re opposed to selling. Picking up a tenant could help you pay off your mortgage more quickly. Plus, you could put the money you’ve earned toward a financial goal, such as into a retirement account. If you’re not sure what to charge for rent, here are some factors you’ll need to take into account.

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Do you have questions about how your rental income could affect your long-term financial plan and tax situation? Speak with up to three financial advisors who serve your area today.

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What to Consider Before Renting Out Your Home

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Deciding to rent out your house rather than sell it might make sense for various reasons. Perhaps you’re having trouble finding a buyer, especially one willing to pay your asking price. Or maybe you haven’t built up enough equity in your home for a sale to be worthwhile.

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But allowing someone to rent your home, even temporarily, is a big deal. For one, are you ready to become a landlord? Regardless of how responsible your tenants might initially seem, they could end up destroying your home or bringing down its overall property value. You might also need to be prepared to have a flexible schedule, so your tenants can reach you if a toilet clogs or a pipe bursts.

","

On the other hand, renting out your home could provide you with enough money to pay off your mortgage. That could be a great way to rake in extra cash if you’re waiting for your home’s value to go up. You could then use the remainder of your earnings as profit or savings.

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Budgeting for Repairs

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Turning your home into an investment property could be a financially risky move. You might have to spend money to fix up the property before you can rent it out, and you’ll certainly want to budget for repairs and maintenance, as you’ll be responsible for maintaining the property and addressing any issues that arise during the tenant’s lease.

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Experts often recommend setting aside 1% to 2% of the property’s value annually for maintenance costs. For example, if your property is worth $300,000, you should budget $3,000 to $6,000 per year for maintenance and repairs. Common expenses may include:

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Routine maintenance, such as HVAC servicing
Lawn care
Minor repairs like fixing leaky faucets

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It’s also a good idea to account for larger, unexpected repairs like a roof replacement, water heater failure or major plumbing issues. Having an emergency fund dedicated to these costs can help prevent financial strain if something goes wrong.

","

And don’t forget to account for the fact that you’ll be on the hook for paying the mortgage as well if your tenant suddenly moves out and it takes time to find a replacement.

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Determining How You’ll Collect Rent

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You’ll also need to decide whether you’ll collect rent, and handle all maintenance requests, yourself, or if there’s a benefit to hiring a property manager.

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Managing the property yourself can save money, as you won’t have to pay property management fees, which typically range from 8% to 12% of the monthly rent. If you have the time and live near the rental property, self-managing can allow you to handle issues directly, build a relationship with your tenant, and maintain full control over rent collection and maintenance requests.

","

However, this requires a significant time commitment. You’ll also be responsible for all aspects of the rental process, including finding tenants, collecting rent, handling repairs and managing any disputes. If you have a busy schedule, this can become overwhelming.

","

Hiring a property manager can ease the burden. They’ll handle day-to-day tasks like rent collection, tenant screening and coordinating repairs. While it does come at a cost, a property manager also brings experience in handling legal issues and lease agreements.

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How Much Should I Charge for Rent?

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When you’re trying to determine how much rent to charge, there are a number of things you should think about.

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#1: Research Comparable Properties

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A good first step is figuring out what your home’s currently worth in the market. That amount could be different from its original price. You can use a website like Zillow to estimate your home’s value, or find a home appraiser who can give you a more accurate assessment of what it’s worth, based on the condition of the home, local home sale prices and where the home is located.

","

The amount of rent you charge your tenants should be a percentage of your home’s market value. Typically, the rents that landlords charge fall between 0.8% and 1.1% of the home’s value. For example, for a home valued at $250,000, a landlord could charge between $2,000 and $2,750 each month.

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If your home is worth $100,000 or less, it’s best to charge rent that’s close to 1% of its value. If your house is more expensive, you may want to charge less rent so that you can attract more tenants. Charging rent that’s too high will make living in your house unaffordable for many people.

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Other than your home’s worth, you’ll also need to consider what landlords are charging for similar rentals in your area. If the rent you want to charge is unreasonable in comparison to other rentals in your area, you might struggle to find a tenant who’s willing to commit to your terms. A website like Trulia or Craigslist can show you how the rental rate in your head stacks up against the rates your competitors are offering.

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If you’re renting out your house so you don’t have to pay for your home loan, the rent you charge has to be at least equal to the cost of your monthly mortgage bill. Don’t forget to factor in an estimate of repair costs, taxes, homeowners association fees and insurance when you’re deciding what to charge.

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#2: Check the Laws in Your Jurisdiction

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You can’t necessarily choose whatever rental rate you want. Some states limit what landlords can charge for rent, security deposits and late fees.

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California, Oregon, and some cities in New Jersey and New York have rent control laws that limit not only how much landlords can charge for rent, but also how often they can raise rent.

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Maryland, meanwhile, has rent stabilization for Takoma Park. The annual rent stabilization allowance is published each year, setting the maximum rent rate landlords can charge.

","

You’ll also want to understand all local regulations and state laws in regards to things like noise ordinances, property inspections and zoning regulations. Landlords must maintain safe living conditions, adhering to housing codes regarding structural safety, utilities and health standards.

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#3: Check for Seasonality

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If your property is in a place such as a college town or vacation destination, you’ll want to research comparable rental rates in terms of seasonality, as well.

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Typically, spring and summer are peak rental seasons, with higher demand as people prefer to move during warmer weather and when school is out. This increased demand often allows landlords to charge higher rent.

","

On the other hand, fall and winter tend to be slower rental periods, leading to longer vacancy times and sometimes lower rental rates to attract tenants.

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How Do I Put My House Up for Rent?

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When you’re ready to find tenants to rent your home, you can ask a real estate agent to list it. But that comes with a cost. You’ll owe your agent commission, whether that’s equal to one month’s rent, or another percentage.

","

If you want to publish your real estate listing, you can upload it onto a site like Zillow. You can make flyers to hand out or use your social media accounts to get your rental out there. Before you hand over the keys to your house, be sure that your prospective tenants have solid financials. Doing this will ensure you know they can afford to keep up with their rent.

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Bottom Line

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If you’ve chosen to rent out your house, you can’t charge rent solely based on your mortgage payments. Picking a rental rate based on the total cost of turning your home into an investment property and on other rent prices in your area can ensure you simultaneously make a good return and find tenants promptly. This part of becoming a landlord is perhaps the most important. It could determine the success your property has for the foreseeable future.

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Tips for Using Rental Income to Maximize Your Financial Plan

","$45","

Photo credit: ©iStock.com/kosmos111, ©iStock.com/Gawrav Sinha, ©iStock.com/DanielMirer

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Should you prioritize debt or savings? This is one of the most common questions in household finance, and it comes up particularly in the field of retirement savings. For this example, let’s say you have a $650,000 IRA and a $120,000 mortgage. As you approach retirement, should you leave that money invested or pay off […]

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","

Do you have financial planning questions? Speak with a fiduciary financial advisor today.

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What Are Your Financial Goals?

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The first thing to consider is why you want to pay off your mortgage. For instance, do you want to eliminate monthly payments from your budget, or are you trying to retire with as few commitments as possible? On the other hand, are you looking to maximize the value of your money? Maybe this is part of your estate plan and you’re hoping to leave an unencumbered property to your heirs someday? Or is this an emotional decision, as you simply don’t like the idea of retiring with debt?

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Whatever your goals are will ultimately inform your strategy selection.

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Many retirees hope to maximize their flexibility in retirement, allowing them to change their lifestyle and expenses at will. In this case, paying off your mortgage might be a wise personal move. Conversely, you might be trying to maximize dollar-value, trying to get the most out of your money. As we discuss below, in that case you may want to review the value of this debt against the value and risks of your portfolio returns.

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Interest vs. Returns

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The quick rule of thumb is to compare your mortgage rate with your IRA’s historical return rate. More specifically, if your mortgage rate is higher than your portfolio’s average return, you may want to pay off the debt. But if your returns are higher than your mortgage rate, you may want to prioritize your savings, while continuing nominal payments.

","

For example, say your portfolio is currently averaging an 8% return and your mortgage rate is 3%. By investing your money over at that potential 8% return, you’re gaining 5% more than you’re losing by paying 3% on your mortgage. That means investing is technically giving you more for your dollar than you would save by paying off the mortgage.

","

Beyond rates, consider the position of your mortgage. With a newer mortgage, most of your payments are likely going toward interest and paying it off early will save you more money in the long run. With an older note, each payment will go more towards principal and you’ll get less value out of accelerated payments.

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Other Considerations for This Decision

","

","

Another important issue is cash flow. If you repay this mortgage early you will reduce your savings and, as a result, diminish your portfolio’s ability to produce income. If you don’t repay the mortgage, your portfolio will generate more money, but part of it will go to this fixed expense.

","

Review how each version of this plan would work. After taking your income and paying your bills, how much will you have left over? How does each version of these numbers meet your financial plans for retirement?

","

Finally, you’ll want to consider how this fits into your overall tax and investment plans.

","

If you itemize your taxes, mortgage payments are effectively reduced by the mortgage interest deduction. This probably won’t change the numbers significantly, as most households just take the standard deduction. However, it can be particularly valuable for a relatively new mortgage with higher interest payments.

","

Beyond that, how do you plan on changing your investment strategy as you enter retirement? Many, if not most, households shift to a more conservative approach once they hit retirement. That tends to create more security, but lower returns. Consider how that will affect your cash flow and the value of your returns against the mortgage rate.

","

At the same time, if you’ve decided to pursue income-based investments, think carefully before liquidating these assets. An income portfolio depends on strong principal to fuel its relatively low-rate/high-security assets. The more of your savings you spend on debt, the less income you will subsequently have.

","

Finally, consider your risk tolerance. Prioritizing returns over debt is a strategy that accepts some degree of risk. You will always benefit by paying off debt, and there’s always the chance that even safe assets will lose their value. While you can mitigate this risk by holding safer assets, make sure you have considered it.

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Mortgage Tips

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Photo credit: ©iStock.com/Wasan Tita, ©iStock.com/Downrung Thongphasuk

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Veterans Affairs (VA) loans provide a pathway for veterans, active-duty service members and reservists to achieve homeownership with favorable terms. VA loans are known for their no down payment requirement and no private mortgage insurance, making them an attractive option for those who have served or continue to serve in the military. However, prospective applicants should know there are specific VA loan requirements that determine one’s eligibility, most notably the borrower’s military service history. Here’s a look at the 2024 eligibility requirement for VA loans.

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If you’re thinking about buying a home, talk it over with a financial advisor first. Connect with a fiduciary advisor today.

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VA Loan Basics

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At its core, a VA loan is a mortgage option that the Department of Veterans Affairs (VA) guarantees. The VA loan program helps eligible American veterans or their surviving spouses obtain long-term financing to purchase a new home with no down payment and at competitive interest rates. However, VA loans can also be used to refinance or rehab an existing home.

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The program’s history dates to 1944 when it was established as part of the original Servicemen’s Readjustment Act, also known as the GI Bill of Rights. Signed into law by President Franklin D. Roosevelt, the VA loan guarantee program was a significant acknowledgment of the sacrifices made by service members during World War II. It aimed to ease their transition back to civilian life by providing a tangible asset for their long-term financial stability.

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VA loans offer financial benefits that distinguish them from conventional loans:

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No down payment required
No PMI required, leading to lower monthly payments
Competitive interest rates

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While the benefits of VA loans are substantial, it’s also important to note potential drawbacks. For example, borrowers pay a VA funding fee that’s based on the type of loan, the size of their down payment and whether they’ve used a VA loan before. And while VA loans do not require a down payment or PMI, there may be other costs such as closing costs that the borrower should consider.

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VA Loan Eligibility Requirements

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To qualify for a VA loan, applicants must satisfy a series of requirements that include specific service criteria, obtaining a Certificate of Eligibility (COE), and meeting lender-specific credit and income standards.

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Minimum Service Requirements

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The VA loan program is designed to honor those who have served the country by providing them with benefits that facilitate the purchase of a home. To be eligible, applicants must meet the following service criteria:

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Active-duty members: Active-duty service members with at least 90 continuous days of service.
Veterans: Minimum service requirements for veterans vary based on when they served. Generally, veterans may qualify if they served for 24 continuous months. Others may qualify if they served for either at least 90 or 181 continuous days of active duty.
Reservists and National Guard members: Eligible after six years of service or after 90 days of active-duty service. Reservists who served before Aug. 2, 1990, also must have been discharged honorably or placed on the retired list, were transferred to the Standby Reserve or Ready Reserve, or continue to serve in the Selected Reserve.

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Additionally, the program extends to the spouses of service members who have died in the line of duty or because of a service-related disability. There are exceptions to these requirements, including individuals who were discharged due to hardship, certain medical conditions, or a reduction in force, which underscores the program’s flexibility and commitment to serving those who have served.

","

When assessing your own potential eligibility, it’s important to visit the VA’s website and review the requirements associated with specific periods of service, as they can vary.

","

Certificate of Eligibility

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The first step in securing a VA loan is obtaining a certificate of eligibility (COE), which serves as proof that the applicant meets the necessary service requirements.

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The COE verifies an applicant’s entitlement to the VA loan benefits and is a prerequisite for moving forward in the loan application process. It confirms the veteran’s eligibility and the amount of VA entitlement, which directly impacts the funding fee and the loan amount.

","

To streamline the process, here is a step-by-step guide to obtaining your COE:

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Gather necessary documentation, such as proof of military service or current statements of service.
Apply using the VA’s eBenefits portal, by mail or through a VA-approved lender.
Submit VA Form 26-1880 along with the required documentation.

","

Credit and Income Requirements

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The VA does not set a minimum credit score but lenders typically have their own requirements. Lenders commonly seek a credit score of at least 620, although there is some flexibility. For example, lenders may consider compensating factors such as a veteran’s savings or their history of making rent payments on time when evaluating lower credit scores.

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Despite this flexibility, lenders conduct a comprehensive review of an applicant’s credit history to ensure that the individual has demonstrated responsible borrowing behavior and is likely to manage mortgage obligations effectively.

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Lenders also require proof of stable and sufficient income to ensure that applicants can sustain their mortgage payments. This typically involves submitting recent pay stubs, W-2 forms and tax returns. For self-employed individuals, the documentation may extend to profit and loss statements and other business-related financial records.

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A key metric that lenders evaluate is the debt-to-income ratio, which compares an applicant’s total debt to their income. This ratio is used to determine whether the borrower’s financial obligations are manageable, with a common threshold being a debt-to-income ratio under forty-one percent. But while the VA loan program offers flexibility, it does not guarantee loan approval, and each applicant’s financial situation is thoroughly assessed.

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Property Requirements

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The VA loan program is designed to facilitate the purchase of a primary residence, and as such, it encompasses a range of eligible property types. These include single-family homes, condominiums, modular homes and certain multi-unit properties. However, it is important to note that the program does not extend to vacation homes or investment properties.

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To qualify for a VA loan, the property must adhere to the VA’s Minimum Property Requirements (MPRs), which are in place to ensure the safety, sanitation and structural soundness of the home. These standards are a safeguard for both the borrower and the lender, ensuring that the property is a sound investment and a safe dwelling.

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A VA appraisal is an obligatory component of the loan process, serving to evaluate the property’s market value and condition. This appraisal is distinct from a standard home inspection in that it focuses on identifying issues that could impact the home’s value or pose hazards to occupants.

","

Applying for a VA Loan

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Applying for a VA loan involves several steps, some of which are identical to the conventional loan application process. Here’s a step-by-step look at how to apply for a VA loan:

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Obtain your COE: As mentioned, this is critical for proving your eligibility.
Pre-approval: Get pre-approved by a lender who participates in the VA home loan program. This involves verifying your credit and income information.
Find a home: Work with a real estate agent to find a property that meets your needs and passes the VA’s MPRs.
Complete the loan application and underwriting: Your lender will process your application and coordinate an appraisal.
Closing: Once approved, you’ll sign all necessary paperwork and close on your new home.

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Bottom Line

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Dating back to the WWII era, the VA loan program has evolved to include a variety of loan types and expanded eligibility criteria, ensuring that veterans, active service members and certain spouses can achieve the American dream of owning a home. To be eligible for a VA loan, prospective borrowers must obtain their certificate of eligible from the Department of Veterans Affairs, which verifies that they’ve satisfied specific service requirements. Additionally, they must find a home that qualifies for a VA loan, as well as meet income and credit score requirements set by individual lenders.

","

Mortgage Tips

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Investing in multifamily properties can be a lucrative venture for those looking to diversify their portfolios. These properties, which include everything from duplexes to large apartment buildings, offer the advantage of multiple rental incomes from a single investment. This can lead to a steady cash flow, making it an attractive option for both new and […]

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","

What Is Multifamily Property Investing?

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Multifamily property investing involves purchasing residential buildings with multiple units. Unlike single-family homes, investing in multifamily properties mitigate the risk of vacancy – even if one unit is unoccupied, the others can continue to generate income.

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There are various types of multifamily properties investors might consider. Small-scale investments include duplexes, triplexes and fourplexes, which are often more accessible to new investors because they cost less and are easier to manage. On a larger scale, apartment buildings and condominium complexes can offer higher income potential but come with more complex management and maintenance needs.

","

For instance, owning a 10-unit apartment building means managing 10 separate leases, ensuring the upkeep of common areas and potentially dealing with more significant repair issues. However, through careful market research, strategic property selection and effective management, investors can achieve substantial financial rewards while contributing to the housing market.

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Steps to Invest in Multifamily Properties

","

","

Investing in multifamily properties offers considerable upsides, so what does an investor need to get started? Here are the essential steps to successfully invest in multifamily properties.

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1. Research the Market

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Understanding the market is the foundation of successful multifamily property investment. Research local real estate trends, rental demand, and economic indicators to decide where to buy. Analyze data on occupancy rates, how much you should charge for rent and any future development plans in the area to gauge the potential profitability of your investment.

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2. Secure Financing

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Financing a multifamily property typically requires a larger down payment and different mortgage options than single-family homes. While properties with between one and four units can be financed with conventional mortgages, those with five or more units typically require commercial financing. It’s important to explore various financing avenues, such as traditional bank loans, government-backed loans and private lenders. Consulting with a financial advisor can help you navigate the complexities of securing the best financing for your investment.

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3. Find the Right Property

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Selecting the right property is key to your investment’s success. Look for properties that meet your budget, offer potential for rental income growth, and are in desirable locations. Consider factors such as property condition, amenities and proximity to essential services. Hiring a real estate advisor with experience in multifamily properties can provide valuable insights and streamline the search process.

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4. Conduct Due Diligence

","

Before finalizing your purchase, conduct thorough due diligence to ensure the property’s viability. This includes inspecting the property, reviewing financial statements and understanding any existing tenant leases. Check for any legal issues or necessary repairs that could impact your investment. A detailed inspection report can help you negotiate better terms or decide if the property is a good fit.

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5. Manage the Property

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Effective and reliable property management is essential for maintaining tenant satisfaction and the value of a property. Decide whether you will manage the property yourself or hire a professional property management company. Professional managers can handle tenant relations, maintenance, vacancies and rent collection, allowing you to focus on growing your investment portfolio. Property managers typically charge between 8% and 12% of monthly rental income. These costs are tax deductible, though.

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Benefits of Investing in Multifamily Properties

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Investing in multifamily properties can benefit those seeking to diversify their portfolios and secure a steady income stream. But there is more to these investments than the rental income they generate. Here are some key benefits of investing in multifamily properties.

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Risks of Investing in Multifamily Properties

","$7a","

Investing in multifamily properties can offer substantial returns, but it’s essential to be aware of the potential risks involved. Here are some of the common risks investors may face:

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Market risk: The property’s value and rental income can fluctuate with changes in the local real estate market. Economic downturns or oversupply can reduce demand, leading to higher vacancy rates or lower rental prices.
Management challenges: Multifamily properties require diligent management. Poor property management can lead to increased vacancy rates, higher maintenance costs, and tenant dissatisfaction.
Financing issues: Securing financing for multifamily properties can be complex. Investors may face higher interest rates, stringent lending requirements and the risk of being over-leveraged.
Regulatory risks: Multifamily properties are subject to various regulations, including zoning laws, tenant rights and building codes. Non-compliance can result in fines, legal issues and costly renovations.

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Bottom Line

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Investing in multifamily properties can be a rewarding and strategic addition to your investment portfolio. By conducting thorough market research, securing appropriate financing, carefully selecting properties, performing detailed due diligence and managing the property effectively, you can optimize your investment’s success. Multifamily properties offer the advantage of multiple rental incomes, reduced risk of vacancy, and potential for significant long-term appreciation. However, potential investors should also weigh the potential pitfalls associated with multifamily properties, including financing challenges and market risks.

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Tips for Real Estate Investors

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