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What do my finances need to be like?

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Before starting your landlord endeavors, you'll want to have good credit - mainly meaning a small amount of credit card and other consumer debts - and a next egg. When you're buying rental property, lenders usually require larger down payments, higher interest rates and stronger finances because statistics say people are more likely to default on investment property than on their own homes.

It is also recommended that you have substantial cash reserve left over after buying the property to help pay for unexpected repairs and to cover vacancies. While most people's common sense say to have at least one month's rent for each unit in reserve, it's not a bad idea to have a line of credit secured to cover larger costs.

Landlords say it also pays to have a substantial cash reserve left over after buying a property. This can help pay for unexpected repairs and vacancies. Although there are few rules of thumb, setting aside at least one month's rent for each unit is a good start. cpas/what-is-a-cpa.php">CPA Paul Berning suggests having a line of credit, secured either by the property or your own home, to cover larger costs.

Another smart financial move is to make sure you save enough money for retirement and your other goals before investing in rental real estate. Rental income can supplement your retirement kitty, but most people shouldn't count on it to replace other investments or allow themselves to be entirely exposed to the whims of their local real estate market.

Rents and property values can fall as easily as rise, and those who are adequately diversified with investments in stocks, bonds and cash will be better able to endure the bad times as well as the good.

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