Are you thinking of taking the plunge into buying rental properties? Before you sign on the dotted line for any properties, know what you’re getting into first. After all, you don’t want to take on more responsibilities than you can afford.
Read on to learn 7 things you should know before buying your first rental property!
1. Determine the Location Before Buying Rental Properties
Any real estate agent will tell you that location matters. When you’re pursuing real estate investing, you want to choose properties in areas that are popular or on the verge of becoming popular. You also can look at areas where there is a demonstrated need for affordable rentals.
Be aware that you’ll pay more on the front end investing in rental properties in hot parts of town. Buying near a university or arts district could up the price quickly. Buying further away from a city center could give you a better deal.
2. Understand How You’ll Pay for the Rentals
Someone with enough money to pay cash won’t need to consider financing options. But if you’re not in that boat, you’ll need to talk with some loan officers.
Conventional loans are the simplest way to secure financing. This process essentially is like getting a conventional mortgage for a home. If you have solid credit and enough for a down payment, you should be able to get one.
Other options include asset-based loans or personal loans from family members. This article details more about the types of loans you can consider. Just be sure that you have a plan to make on-time payments, no matter which loan you get.
3. Surround Yourself with the Right People
Wondering how to start investing in real estate properties? You’ll have more success if you work with reputable people. This can include a good real estate agent, home inspector, and insurance broker.
You’ll want a real estate agent with knowledge of the local landscape. They will know where to buy rental properties and can guide you toward areas with momentum. Additionally, they’ll help you negotiate and score a fair price for the property.
A good home inspector can point out immediate repair needs that could gouge your bank account. Consider whether you’ll want to hire a property manager, too. They can handle the day-to-day tasks and free you up to invest in other properties. They will require a salary and potential benefits, however.
Be wary of partnering with friends unless you’ve established clear boundaries and rules. And ask for referrals before you go into partnerships with anyone!
4. Know the Expenses Before Buying Your First Rental Property
When you’re investing in rental properties, make sure you’re prepared for the expenses. You’ll want to plan on routine maintenance, taxes, and insurance fees. Look at your financial picture and do the math before making an investment.
Start by mapping out a budget. Account for things like snow removal and general grounds maintenance. You could take care of this yourself to save money or hire it out.
You need to provide a livable space to tenants — but you can charge more if you upgrade the spaces. Figure out what price you want to charge per unit. Make plans to invest in stainless steel appliances and granite countertops if you’re hoping to cater to higher-end tenants.
5. Figure Out Your Rental Agreement
If you’ve ever rented an apartment or home, you probably had to sign a rental agreement or lease. When you take on the role of a landlord, you need to have that document ready. It sets out the rules for your tenants!
If you don’t put together a rental agreement, you set yourself up for some sticky situations. And in your lease agreement, you should be very clear about tenant expectations. For instance, what happens if a tenant wants to break their lease?
Spell out the consequences of breaking a lease early. Be clear about fees for excessive damage to the apartment. Will you allow tenants to paint or hang pictures on the walls?
And map out different lease rates depending on the length of the lease. For example, you could offer a lower monthly payment to someone who leases an apartment for 18 months. Someone who wants a 6-month lease, by contrast, could be charged a higher fee.
6. Make a Maintenance Plan
Are you handy around the house? If you’re not a skilled novice carpenter, you’ll need to connect with some reliable ones locally. Maintenance issues are inevitable when buying rental properties, and you need to be prepared to handle them.
Give your tenants the contact information for plumbers or electricians, especially if they need them after hours. You should do routine maintenance checks of air conditioners and heating systems, too. You can avoid bigger repair costs down the road.
When a summer storm blows through town, it could knock down power lines or trees. And if your property is in the path of destruction, you could be left with significant repairs. Budget for potential damage if your property is in an area prone to severe weather.
Don’t worry, though — you might be able to deduct repair costs. This is true if you’re not living in the rental property but are the owner of it.
7. Choose the Right Tenants
You want reliable tenants who will pay their rent on time. As a property owner, you can take control and choose your tenants. Develop an application that checks out their financial stability.
You want tenants with solid credit scores and employment. You’ll want to require a security deposit before you grant a lease to your tenants. This is a show of good faith from the tenant that you could refund at the conclusion of the lease.
Develop a marketing plan that targets the tenants you want. Are you looking to attract young professionals? Then use social media ads that show people lounging by the apartment pool with cocktails on a Friday night.
Place posters at local coffee shops or colleges. And provide clear contact information as well as a link to a professional website.
Learn How to Start Investing in Rental Properties
Buying your first rental property can be both exhilarating and scary. Renting out a property comes with a lot of responsibilities, like maintenance. But it can reap big financial rewards!
Need more real estate tips? Check back for new and informative articles.