Buying your first rental property can be an exciting and profitable venture, but if you don’t plan it out correctly, it can also be an expensive mistake. Here are 20 tips to help you buy your first rental property, so that you can start enjoying the rewards of being a landlord with minimal downsides.
1) Do your homework
Doing your homework before buying a rental property can be the difference between success and failure. In order to avoid the pitfalls that some first-time landlords experience, you should consider asking yourself these 11 questions:
– What are my financial goals?
– How much money do I want my rental property to bring in every month?
– How much cash flow will I need for expenses such as home repairs and vacancies?
– Will this be a short-term or long-term investment?
– What is the average appreciation rate in my area?
– What is the vacancy rate for rentals in my area? – What type of tenants am I looking for?
– Do I have enough capital to cover all of the upfront costs associated with renting out a property (i.e., renovations)?
– Can my spouse or partner help me with purchasing the property?
-If not, what are my other options? How many properties do I need?
-Should I buy a duplex or an apartment building?
-Is it better to buy in an up-and-coming neighborhood where rents are increasing quickly or a more established one where the market has already taken off?
There are so many variables when it comes to investing in real estate; which one’s right for you?
2) Know your credit score
You need good credit in order to buy a rental property. When you apply for a mortgage, the lender will pull your credit score and you will be denied if it’s not good. If you find out that your credit isn’t up to par with what lenders want, then take some time before applying for a loan. Clear up any outstanding balances that may be negatively impacting your score or try paying off any old debts like student loans or car payments that are no longer needed. Make sure that all other bills are also paid on time so there is nothing else hindering your ability to qualify for financing when the time comes!
3) Have realistic expectations
Have realistic expectations before buying. Investing in rental property is not a get-rich-quick scheme. It can take years before you see a profit, especially if you’re new to real estate investing and want to buy a multi-unit building. Before you start shopping, talk with experts and study the market. Consider your timeline and don’t buy something that doesn’t make sense for your budget or goals.
4) Don’t Hurry
Don’t Hurry! Buying rental property is a big step. It’s not something you want to do on a whim, and it’s not something you want to rush into if you’re not ready. Take your time and make sure that this is the right decision for you before making any rash decisions.
5) Look for a fixer-upper
If you’re looking for your first investment property, but don’t have much money, consider buying a fixer-upper. Fixer-uppers are generally lower priced than comparable properties in good condition, but they can offer good potential for future growth. For example, if you’re able to buy a house for $250,000 and put $50,000 worth of work into it to make it livable and attractive for renters or buyers, you’ll be able to charge more rent or sell the house for more than the purchase price. That’s just the math.
6) Get a good home inspector
When buying a rental property, it is imperative that you get a good home inspector. They will be able to assess the condition of the property and point out any repairs that may need to be made. This will help you determine if there are any major problems with the house that need fixing before you buy it. Remember, anything wrong with the house can affect your rental income and is another cost for you as a landlord.
7) Consider the location
- The first thing you need to do is consider where you want your rental property. A potential property needs to be close enough for you or a property manager to check on the home often, but not so close that it will be difficult for tenants to commute.
- Consider proximity to public transportation and universities. If there are colleges or universities in the area, this can attract a lot of students who may need housing during their studies or when they graduate and look for jobs. It also means that there will be more people looking for places at any given time, which might increase the chances of finding someone interested in renting your place out long-term.
8) Have a solid business plan
When buying your first rental property, it’s important to have a solid business plan.
-Find a property in a good neighborhood.
-Do not choose the most expensive house. The more expensive the home, the higher the monthly mortgage and utility bills.
-Pick a place that is well cared for and in good condition because you will be responsible for repairs on any damages or problems that occur during your tenancy.
-Include contingencies in your offer if you are not able to inspect the inside of the home before you close on it. These might include agreeing to give up your earnest money deposit if the inspection report turns up a major problem with the property .
-Get referrals from friends, family members, and coworkers who have experience with renting out homes in your area. They will know about any challenges that renters may face which made living there difficult due to all the noise!
-Ask friends and family members what they think about the area where you want to buy .
9) Get to know the market
Here are 10 things that help you to know the market
1) Get to know the market before buying.
2) Consider the neighborhood and schools.
3) Look for a property that will appreciate in value over time.
4) Get pre-approved for financing before making an offer on a property.
5) Talk to a mortgage broker about what it takes to qualify for a loan and the difference between buying with cash or financing, if you don’t have the money saved up yet.
6) Ask about any restrictions on renting out rooms or using the property for Airbnb or other short term rentals, if you’re looking at a multi-unit building or duplex.
7) Make sure you can afford the monthly payment including utilities, taxes, insurance and maintenance costs.
8) Be flexible when deciding how many bedrooms to rent out; not all renters want three bedroom apartments.
9) If possible, get a rental income report from recent years from the current owner so you’ll know what’s been happening in terms of occupancy rates.
10) The best time to buy is during economic downturns when prices are lower and there’s more opportunity for appreciation as prices rise again.
10) Find a good property manager
Finding a good property manager is the first step in buying your first rental property. Finding a good property manager means finding someone that you can trust to do their job and protect your investment. Property managers will find, screen, and manage tenants while also keeping the property well-maintained.
When looking for a new property manager, here are some tips to help you get started:
– Ask family or friends for recommendations
– Check with your banker or mortgage broker to see if they have any connections
– Research on the internet – Ask local real estate agents
– Join an association of professional property managers such as NARPM (National Association of Residential Property Managers) or NAIOP (National Apartment Association International Property Owners) – Google property management’ plus
11) Have reserves
Buying a property can be an expensive endeavor, so it is important to make sure you have the necessary funds or financing in place before making an offer.
You will also need to think about your down payment and what the mortgage payments will be like. It’s important that you don’t take on too much debt when buying your first rental property.
The following are some other things you should consider when buying your first rental property
12) Consider the costs of repairs and renovations
Buying a rental property can be a great way to start investing, but it’s important that you have the money for repairs and renovations. The good news is that you can use your rent payments to help pay for those costs. But first, make sure you get a professional inspection and take the time to look at any issues with the house or apartment. If you find an issue with the property, ask about how much it will cost to repair. Also talk about whether there are other reasons not to buy (such as if crime rates are high). If there are problems that can’t be fixed before closing on the purchase, consider postponing the closing date so you don’t lose any of your deposit money.
13) Don’t skimp on insurance
When buying your first rental property, don’t skimp on insurance. Purchase a home warranty and liability insurance from the start so that you’re covered in case anything happens.
A landlord’s insurance policy is different from a homeowner’s policy because it covers damages from tenants, other people on the property, and damage caused by natural disasters like hurricanes.
Buy renters’ insurance for your tenants to make sure they’re protected against theft and fire damage.
14) Factor in vacancy rates
Your rental property’s vacancy rate is the percentage of time it’s vacant. To calculate this, divide the number of days in a year by 365. For example, if your property is vacant for 60 days out of the year, its vacancy rate would be 16%. Vacancy rates below 5% are considered healthy and those above 20% indicate that your property may not be in high demand. Your home could also be facing foreclosure or on the verge of being repossessed because it sits empty for so long. If you’re considering buying an investment property with a vacancy rate of over 20%, consider how much you’ll lose due to vacancies before making any purchases. Another thing you should consider is that many tenants will take longer than 30-days to find new housing when they move, which can really affect your bottom line.
15) Get familiar with the law
You’ll need to be familiar with the law and how it relates to your specific property. The more you know about the law, the easier it will be for you to navigate what you are looking for. When starting out, it is always a good idea to work with someone who is experienced in the field and knows what they’re doing. Don’t forget about marketing to Buy Your First Rental Property – if you don’t have any tenants, then there’s no one living in your property!
16) Understand the tax implications
Taxes are not the only thing you have to worry about when investing in rental properties. There are many things you need to understand before jumping into a new investment. This is true for both the buy and sell side of a transaction. For example, if your property is rented out on a leasehold basis, you may be subject to different tax implications than if it was leased on a freehold basis. Freeholds are treated as more of an asset that can be passed down to heirs. Leaseholds are treated as personal assets with some caveats depending on how long they’ve been held or whether they’ve been inherited or gifted.
Owning investment property also creates some complications with regard to transferring assets during life and death, as well as between spouses or civil partners during divorce proceedings. Furthermore, there could be inheritance tax implications depending on where you live – some countries have higher rates than others so make sure you do research before making any decisions.
17) Have an exit strategy
No matter how much you love a property, it’s important to have an exit strategy. Otherwise, you may find yourself stuck with a property that doesn’t generate the income needed for your desired lifestyle. Here are some tips for developing an exit strategy before buying a rental property:
*Don’t overextend yourself by taking on more than one property at once
*Know what kind of properties produce higher rental income
*Use a real estate agent who is familiar with the market and area so they can help you identify high-quality properties that will provide the best return on investment (ROI)
*Stay committed – buy only if you have plans to stay in the area for at least five years or longer
In Conclusion, buying your first rental property is a major step for many people. It can be a great investment and provide stability in your life. If you plan to buy, make sure you take these 17 Tips to Help You Buy Your First Rental Property into consideration before you start looking at properties. These tips will help you with the process of finding, qualifying for, and financing your first rental property.