How to Determine if you Can Afford your Rental?
Are you looking to invest in real estate but don’t know if you can afford your rental? What if your rental sits vacant and you are responsible for the house payment and bills with no money coming in? Here are some great ways to test what your risk tolerance turns out to be.
Set Up A Special Savings Account
One great way to see if you can afford your rental is to set up a special savings account where you deposit the money it would take to cover all expenses each month should your rental go vacant. Of course the money would be in savings, however as you deposit it, think about how it would feel if that money were going to the bank and utility companies.
As the total grows, examine how you feel about knowing that much money would be gone. Can you even afford to deposit the required amount of money each month? This is a great exercise in the reality of the amount of money it would take to cover a vacant rental.
Make A Monthly Donation To Charity
Another great idea is to make a monthly donation to charity. Make the donation significant enough that you feel the “loss” so to speak. Of course you are helping society at the same time you are testing out your risk tolerance and resolve, and your donation is tax-deductible. Can you continue to make the donation each month without repercussions to your emotional well-being? Can you afford to make the donation in the first place? Try it and see how you respond.
Create A Detailed Budget
This last idea is very practical, but will serve you well to determine if you can afford your rental. Create a detailed budget with all your money coming in and going out. Would you have an extra $800 or more per month to cover rent and utilities for a vacant rental? Do you have enough money in savings to cover these expenses? It’s an excellent idea to save up at least 6 months expenses in advance should you have repairs to be made or should your property remain vacant for an extended period of time.
As you consider buying a rental property, try out one of these ideas to see if you can afford it.