Experts say you shouldn't buy the first property you like or jump into land-lording without a great deal of thought and accumulated knowledge. But at some point, you have to make a decision. Establish a plan for finding property, financing it, fixing it up, selecting the right tenant, getting insurance, and collecting rent. And then go for it!

Buying Property

If you decide to buy property to rent out, give yourself a deadline — say six months to a year — to do so. Start looking at property immediately. You need to develop a keen eye for what you can get at various prices, and it will take time to recognize a good bargain. Meanwhile, keep educating yourself so that as you get near your deadline you'll be ready to make a decision. Try not to procrastinate beyond that point or you might be doing so forever.

As you look at property, consider what has to be repaired, what has to be replaced, and what it will cost. Consider whether you can attract your “perfect” tenant to that neighborhood. Look at “Income property for sale or trade” ads. As you're driving through neighborhoods, watch for signs that say “For sale by owner.” You might be able to make a better deal with an owner because you won't be paying any real estate commissions.

Converting Your Home into a Two-Unit

It's not easy to estimate what it will cost to renovate your home, but you might come close if you start out by getting prices on new construction, then add on a contingency factor for the extra work of putting things back together. You'll also have to factor in extra funds for unpredictable problems you might uncover once you start electrical work or plumbing.

To come up with an estimate of your renovation costs, find out what an electrician would charge to wire a new house of approximately the same square footage as the apartment you plan to create. Also ask a carpenter what it would cost to build that house. If you're adding a bathroom, find out what a plumber would charge to install one. Add up the prices, then add on a contingency factor for the unforeseeable extras that might run up the price.

Finding Extra Money

If you're short on money for fixing up your property, you can trade a newer car for an older, reliable model. You can use the equity in your home to get a loan, although be sure you thoroughly understand what you're getting into before you sign the papers. You can take out the cash value of a life insurance policy and reinsure yourself with a term life policy for the same amount of insurance as you had before. Term life premiums are not expensive and they don't tie up your savings. As a last resort, is someone in your family willing to back your venture? You won't know unless you ask.