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When should a real estate investor purchase more residential rentals?

On Behalf of | Feb 29, 2024 | Real Estate

Some people become landlords due to surprising personal circumstances. Someone might inherit the primary residence of a childless uncle despite already owning a home where they live with their family. Others might have purchased a property they no longer need because they have moved in with a romantic partner or their parents to care for them as they age.

Instead of selling the property and making all of the investments necessary to maximize the home’s sale price, the owner might instead decide to rent it to others. Residential property rentals can be an excellent source of mostly passive income. Someone who has already started renting out one property might aspire to acquire and rent out multiple others.

How can someone evaluate whether expanding their rental home holdings is the right choice?

Look at the possible costs

The first concern for someone looking into residential rentals is the expense inherent in maintaining such properties. If the aspiring landlord does not have enough capital to pay for the property outright, then they have to finance the purchase. Someone needs to ensure they can meet their mortgage payments even if a tenant falls behind on rent or has unexpected personal expenses. Additionally, landlords in Ohio generally have an obligation to maintain the properties that they rent. Landlords, therefore, could be just one phone call away from meeting to install a new furnace or address a major plumbing debacle.

Ensure adequate availability

The need to respond to emergency report situations or a tenant who locked themselves out of their unit can significantly curtail a landlord’s personal freedoms. The more properties they own, the more likely they are to receive a phone call in the middle of the weekend or late at night asking for assistance from a tenant. A landlord either needs to outsource some of those property management needs to a third party, who they generally need to pay, or they need to ensure they are available consistently for emergency tenant needs.

Track local housing demand

Currently, there is far more overall housing demand than there is supply on the domestic market. People need rental properties more than ever, but not every neighborhood sees the same degree of demand. Landlords need to be very judicious about when and how they expand their rental property portfolios. Investing in the wrong neighborhood might make it harder to secure tenants or recoup property investments due to lower local rent prices and a surplus of supply.

Landlords also need to consider the additional legal liabilities they may incur as they begin renting to more tenants. Having the guidance and informed perspective of someone familiar with real estate law can help an aspiring landlord make better choices about developing their rental property portfolio.