Real estate has become one of the most popular types of investments, so if you’re considering purchasing a rental property, you are far from alone.
However, to be successful at this type of investment, preparation is key.
Potential investors must understand what’s involved and what’s expected of you in order to make the best decisions for your situation.
That’s why we’ve put together these eight tips for buying rental property, to help guide you through the process, find your footing in this type of investment, and successfully obtain financing.
Read on to learn how to develop the right rental strategy for you.
1. Do Your Research
Before you move too deeply into the process of buying a rental property, educate yourself on how it works and what’s required of you.
Read about rental investments and talk to other experts and investors who understand the industry and have been through the process numerous times.
Ask them what worked, what didn’t, what their best tips are for buying rental property, and what they wish someone would have told them at the start of their journey.
You can learn a lot from the mistakes of others. Absorb this info, but also keep your mind open to how things may work differently for your unique situation.
2. Determine If You Want to be a Landlord
After you’ve talked to other experts and dig into some research, what do you think about becoming a landlord?
This is one of the most important considerations for this type of investment. Being a landlord is a lot of work, and requires time and effort.
Landlord responsibilities include:
- Advertising the property to find tenants
- Performing background checks and calling references
- Obtaining a security deposit
- Performing maintenance and replacing appliances
- Ensuring tenants pay rent on time
Landlords must navigate potential long-term relationships with tenants, in addition to being readily available for repair requests.
Those who are uninterested in being a landlord don’t have to give up their dream of this type of investment: You also could hire a property manager.
A property manager will perform all the landlord duties, while you provide around 10% of your rental income to pay for their services.
3. Find the Right Property
For your first property, it’s helpful to find one that’s relatively close to where you live.
You can begin analyzing properties in your areas of choice anytime online to get a feel for prices and understand your ideal market.
Part of finding the right property also includes the structure and layout of the home, as well as how easy it is to access plumbing, heating, and electrical systems. Be sure to consult with an inspector prior to purchasing any property.
Then, you can run some numbers to determine what you can afford and what will garner the best return on investment.
Once you’re comfortable with analyzing properties and defining your ideal market, reach out to local lenders, real estate agents, or property managers to discuss your findings.
4. Get Your Finances in Order
You’ll have many loan options when you’re ready to obtain financing, but first, work on getting your finances into the best shape.
Borrowers in good financial standing will have access to the best deals.
This includes:
- Paying down debts
- Boosting your credit score
- Saving up for a down payment
Getting your finances in order also includes understanding how much you can afford and the ongoing costs of the property.
These costs include utilities, maintenance, taxes, and more.
Then, you must weigh these costs and what you can afford against how much you estimate you’ll collect in rent each month.
5. Understand Local Rental Laws
Investors must be aware of local rental property laws, including the laws surrounding security deposits, evictions, fair housing, and other regulations.
Perform your own research to get an idea of your responsibilities, but also connect with local experts and attorneys to help you successfully navigate these regulations and ensure you won’t have any issues.
Local regulations also include the types of work you’re both allowed and required to do on the property prior to renting it out, and which types of professionals may need to be hired to oversee the work.
Also, don’t forget about your tax benefits — connect with your tax preparer to find out all the write-offs you can use as a landlord.
6. Develop a Strategy for Attracting Tenants
You don’t have to be a marketing expert to attract tenants, but you will need a plan to find quality renters quickly and efficiently.
Apartment or home listing sites are a good place to start, as well as using social media and online advertising to target your ideal tenants.
Plus, don’t underestimate the power of local advertising or word-of-mouth, especially in smaller towns.
7. Have a Solid Emergency Savings Fund
In addition to your down payment savings, you’ll need another, separate savings account for emergencies, maintenance, upkeep, and vacancies.
The general rule is to save about 20% to 30% of your rental income for unexpected expenses.
As you’ll likely find out from speaking with other investors, unexpected expenses are something you can count on — so this emergency fund is truly an investment essential.
8. Work With a Lender to Get Pre-Approved
After you’ve moved through our tips for buying rental property, you can begin the first step to acquiring financing for your property: Connecting with a trusted lender for loan pre-approval.
Depending on your unique background and financial situation, you may qualify for anything from a conventional purchase loan to a VA loan.
The right loan for you will provide the needed flexibility and options for financing the property of your dreams.
Reach out to the loan officers at River City Mortgage to get started.Our expert team will provide authenticity, accessibility, and the perfect amount of guidance to help you successfully navigate the lending process and get your offer accepted.
