Purchasing an investment property has become an increasingly popular option as a means of bringing in a passive income. From rental properties to vacation homes to “flip houses”, realtors are seeing clients much more frequently who are interested in investing money into properties that will not be their primary residence.
With Madison growing by leaps and bounds the last couple of decades (with growth more explosive now than ever before), many have identified it as a place they’d like to invest in additional properties to turn into rental homes.
I recently sat down with Madison resident, realtor, and property management business owner Beau Miles to discuss the culture of investment and rental property in Madison.
Miles, owner and originating broker of Essential Property Management as well as an Associate Broker at Keller Williams, said that from a property owner’s point of view, “The culture is incredible.”
Having an Investment or Rental Property in Madison
Miles says that homes Madison City may rent for upwards of 10-20% higher than they would in surrounding areas, which is likely driven by the top-rated school system. He also explains that more people are moving here than Madison has properties, so demand is hot. With the projected news of various industries planting roots in north Alabama, he doesn’t see that demand changing any time soon.
If purchasing an additional rental property in Madison that you’d like to rent is on your radar, Miles shares a few things you should know.
Rental Property Culture Amidst COVID-19
As of the end of April, Miles was just as curious as everyone else about how the real estate market will be affected in the weeks and months following the global pandemic. He speculates that there could unfortunately be a slight increase of foreclosure listings, which could lend themselves to more affordable passive-income properties for those who are ready to buy.
When Buying the Home
As soon as you know that owning a rental property in Madison is something you want to dive into, contact a realtor. A realtor will walk you through what’s needed regarding down payment, discuss intentions of how long you plan to own the home, if this will be a “house hack” (i.e. you will live in the home as your primary residence for a certain amount of time and then move out to rent it), and generally help keep you informed and guided so that you make the right investment.
Miles explains that it’s generally difficult to get a home loan with less than 20% down as an investor, so these are the types of things an informed realtor will walk a potential investor through.
Real estate is currently more of a seller’s market, so local homes are selling fast. The volume of homes for sale under $200,000 is incredibly slim. Be prepared to act quickly if you see an affordable home pop up on the market.
The best time to sell a house in our area is in May or June, so the volume of listed homes typically increases around this time.
One may declare Homestead on one property that they occupy via the Alabama Homestead Exemption, so a property owner’s taxes will be higher on subsequent homes they rent out to others.
Common Fears of Becoming a Landlord
Miles understands that many who are interested in owning a rental property in Madison ultimately fear that their expenses of fixing or maintaining the home will be greater than their profit. He offers a few suggestions.
- Purchase a home warranty that may cover big-ticket items such as a new roof, HVAC unit, water damage, etc.
- Establish a new savings account where you put away a good chunk of your monthly profit from the home.
Many also fear that their investment home will not be properly maintained. Miles explains that if one’s standards are spelled out clearly in a lease, a property owner has nothing to fear.
In our Madison community, Miles believes that most landlords and tenants alike desire to uphold high standards and that issues like the aforementioned are generally few and far between.
Four Ways to Make Money on a Rental Property
- Cash flow (the money you make over your expenses)
- Appreciation of the home
- Depreciation (the way one deduces on taxes)
- Loan payoff
Reasons to Hire a Property Manager for Your Investment Property
- Property managers field the commonly dreaded 2 a.m. phone call about burst pipes or other untimely home issues.
- Property managers will do tenant screenings.
- Property managers handle deposits and rent collections.
- Property managers can offer expertise about rental rates, marketing tips, and laws/regulations.
About Essential Property Management
Miles explains that Essential Property Management was built out of a desire to work for the client. Unlike other property management companies, EPM has a variety of monthly plans that spell out exactly what a client will get, allowing the investor the opportunity to hold onto more of their profits from the home.
Miles says that EPM only charges a client the traditional 10% fee if services are needed outside of what their monthly package includes. Plans range from $55 to $79 monthly and are listed on their website.
Miles suggests getting set up with a property manager for your investment property as soon as you are under contract on the property. If you are considering an investment property or are ready to hand over your landlord obligations to Essential Property Management, you can visit their website or email them.