Essential Tips for Buying Your First Investment Property
By Erin Reynolds, diymama.net
There are many great reasons to invest in a rental property—passive income, predictable cash flow, tax benefits, and real estate appreciation to name a few. However, buying a rental does come with its fair share of work. To ensure your rental business is a success, you’ll have to calculate the costs involved, make a plan to mitigate risk, and determine how you’re going to manage your rental as efficiently as possible.
Are you ready to jump into the wonderful world of real estate investing? Check out the following tips from Front Desk USA to ensure your first rental property is a success!
Research the Rental Market
First, Smartland.com suggests getting to know your local rental market. Researching different markets can help you determine the best place to buy based on important factors like the demand for rentals and the going rental rate for the area. Pay attention to location factors like crime rate, proximity to amenities, and availability of public transit to determine the desirability of different locations.
The vacancy rate can also tell you a lot about the neighborhood. A low vacancy rate means that rentals are in high demand while high vacancy rates can be a red flag.
Wherever you live, instead of renting out your home long-term, consider renting it short-term to visiting tourists. Vacation rentals in popular areas are attractive options for travelers visiting the city.
Calculate Your Expected Profits
Renting out a property isn’t always profitable. In fact, many first-time investors have a hard time breaking even every month. Research is the key to ensuring your property will turn a profit instead of sucking your savings dry and leaving you with no choice but to sell.
Regular expenses can add up! Use local data to calculate the expected cost of expenses like HOA fees, insurance, utilities, property taxes, and mortgage payments. Remember to estimate routine maintenance as well! Once you’ve estimated monthly costs, subtract this number from your planned rental rates to determine your anticipated monthly cash flow.
Prepare Your Down Payment
While first-time homebuyers can get away with down payments as low as 3.5 percent, InvestFourMore.com notes that purchasing a rental property typically requires a down payment of at least 20 percent. Saving up this kind of money can take some time, so ensure you plan ahead! Keep in mind that you may also have to pay closing costs, real estate agent commissions, and repair costs when buying a new property, so make sure you have some extra cash after paying your down payment.
Prepare for Unexpected Expenses
Unexpected expenses can derail the best of financial planning. For example, it’s important to be aware of all of a house’s issues on the front end before buying a home as-is. You’ll have a good idea of how much cash you’ll need on hand to get the property ready to rent.
It’s also important to have cash available for unexpected expenses that may occur while managing your rental. For example, if your tenants stop paying rent, you will be glad you put some money aside to cover your expenses until you can get things cleared up. As The Reluctant Landlord explains, you should also be prepared to cover the cost to repair or replace broken appliances. You can’t leave your tenants without a working furnace in the winter!
Attract High-Quality Tenants
Once your rental is all set up and ready to welcome tenants, your top priority should be finding high-quality renters. Great tenants will save you money and stress, so spending the time to find them is well worth it. High-quality tenants are less likely to cause damage to your property, miss rent payments, or move frequently and create costly vacancies. To find the best tenants, make sure you buy a property in an area that’s popular with your target demographic. For example, if you’re looking to rent to young families, look for rentals near good schools. Most importantly, make sure you screen your tenants before having them sign a lease!
Buying a rental property can be a great way to your feet wet in the world of real estate investing. Just make sure you do your research before committing to your major purchase! Careful planning will ensure your property purchase will serve as a valuable investment that generates passive income for years to come!
Photo via Pexels
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