Are you looking for a way to make additional income? Do you think you have a good lead on an area of the city that would provide great rental properties? Then you may be ready to add the title of "landlord" to your credentials. However, if you are a first time investor, you may want to conduct research through books about investing in rental properties for beginners.
Knowledge is power. And although investment real estate can be fruitful, you must choose your type of property, your agent and most importantly, your location, carefully. When you buy to let, a book on this basic knowledge will inform you of things that you may not have otherwise considered. If this type of investment appeals to you, then here are some tips.
How To Find The Right Property. When shopping for investment properties, the effort to find a house that is just right for drawing an income can be frustrating.
Below are the criteria you need to match.
- Location, location, location. You have heard it before; real estate is all about location. If you plan on purchasing a multi-family rental property and leasing it out for income, you must first find a place with a healthy, and hopefully booming, rental market. College cities and towns can be a great place to find rental property for sale. Many students choose to live off-campus. A large portion also end up staying and renting in the city where they went to school for at least a year or two. Schools with large populations and graduate school programs are particularly good areas for investment. Other locations to consider are larger, urban cities in general (since people want to live close to where they work and close to exciting city life). Rural communities and suburbs (unless they are very close to public transportation into the city) can be less fruitful as far as an investment rental property is concerned.
- Fixer-upper? If you are handy (or have the cash to hire a contractor), it may be a good idea to find cheap property for sale by getting a fixer-upper. Then you can convert the renovated homes into rental properties. But, be wary. Sometimes the cost of renovation far outweighs the benefits of purchasing and renting out a newer or more completed building. Some owners find that after the work is done, they might as well turn the units into condos and sell. If you are not up for a full-on project, steer clear of "contractor specials" that arise on the market.
- Buy an existing cash cow. Cash cows are hard to come by. But if you take over a property that has existing tenants and a positive cash flow, you cannot go wrong as long as the building is not about to topple over. Sometimes older members of the population, tired of the landlord game, will give up their well maintained properties for low prices. Have your agent do a cash analysis of the rental income and the sale price of the home to determine which homes on the market may be a good deal prior to investing in any of them. Have an inspector make sure the building is current with all local building codes and that the home is in good shape before you make the purchase. I suggest getting all the inspections possible, including structural and pest, just to make sure you aren't buying into a money pit. The more information you gather, the better informed you will be about the purchase of the property.
Don't Do This Alone. There are a variety of companies and services out there to help new investment property owners. These professionals are there to assist you in finding the rental property that meets your needs.
- Get an agent. Though you must do research about the community on your own, you can also rely on a real estate agent to do much of the legwork. This collaboration will result in you finding the best rental property or rental houses for sale. Have an agent show you the properties in town and get a firm grasp on what the market values are for houses that have one, two and three bedrooms. When purchasing older homes, make sure you pay attention to the caliber of renovation in each unit. This is because a three bedroom with new granite counter tops and stainless steel may go for triple the amount of a bigger, but more run-down rental in the same area of town. Your agent will help you find good income property and will estimate the amount of money you might be able to generate with it.
- Get a terrific mortgage broker. When you find what seems to be the perfect rental, you may find yourself wondering, "Now, how do I finance rental property?" Learning about the types of loans is crucial, particularly if you are trying to buy a property with no money down. This is when you talk to experts and learn from them. You should speak to a mortgage broker about a rental property home loan before you even step foot inside a real estate office. This will ensure that you understand rental property rates and the steps to take in order to finance your purchase. Knowing how much you can afford is the key to the process of applying for a loan. Make sure your mortgage is less than the amount of income you will get from your renters. Usually this will require a good deal of money down and a low interest rate on the principal amount borrowed. Bad credit makes it more difficult when buying rental properties. But with the right assistance it can be done. Speak to your adviser about the options for investment property loans, and remember to shop around for a mortgage rate, as they can vary widely.
- Property managers. The next step is to decide if you will provide the rental property management or not. If you decide not to manage your own rental homes, then once you secure a good investment property, you need to find someone to be your rental property manager. This person will be on-call for any problems that may arise in your building. If you live out of town, a property manager is crucial. If you do not want to hire one, at least formulate a list of reliable handymen (plumbers, roofers, carpenters, HVAC company) that you can call on should any problems arise. Bottom line: the basic decision you need to make is whether or not you want to (and have the time to) handle the management of your property or hire a manager to do it for you.
- Legal advice. It is always a great idea to have legal counsel for any real estate decisions and transactions. A lawyer can also help you with any issues that may arise with your tenants and will provide you with assistance during the closing of your investment property. Have a contact ready before you make any purchases and consult him or her with any questions that may arise during the buying and renting process. Not all people will use a lawyer, but it is a good idea.
Making The Purchase. Actually buying a rental property as an income generating investment can be a nerve-racking experience. Following the advice below will make the final steps in this process as easy as possible.
- Make an offer. As always, you cannot lose by making an offer. If you see a property that you really like but it does not "cut it" on the financial side, you can always make an offer for less than the asking price anyway. If it is a buyer's market you may be surprised at how willing the seller is to meet your price. You never know what will happen when buying a house.
- Get tenants. Have your real estate agent advertise your rental properties at a price that allows you to make money on your investment. When you have an ad that is attracting possible tenants, make sure you examine your applicants' credit rating, job history, references, and if possible, you should meet them prior to signing a property rental agreement. This is due to the fact that if you choose tenants that destroy or do damage to the property, or those that do not pay rent, you are not "gaining" with your investment. Always get a security deposit in addition to, or in replacement of, a last month's rent when finalizing any agreement or contract. Put any and all stipulations in the lease (no smoking, no pets, etc.) and make sure the tenants understand the terms and sign where appropriate on the lease. If you are unable to take care of this transaction in person, then be very clear to your management company about your expectations.
- Bank account. You will want to speak to your financial adviser about your bookkeeping. That is because a property investment entails a whole new set of IRS regulations and accounting nuances. Check with your accountant about the best way to keep your property rental records to aid in filing an annual statement with the government. It is also a good idea to line up all your help (mortgage broker, property rental management, real estate agent, lawyer and accountant) prior to making any purchases. Buying rental properties for investment purposes can be a great source of income, but as with everything, advance preparation is the key to success.
Good luck with your new source of income and I hope you enjoy being a landlord!