Seven Tips for Buying Your First Rental Property for Investment and Profit
A guest post from Daria Kelly Uhlig
Life as a landlord isn’t risk-free, but the profit potential is significant. You’ll earn a return on your investment in two ways. In the immediate term, you’ll earn revenue from rent. In the long term, the property’s value should appreciate.
The keys to a successful venture are choosing the right property for your goals and conducting due diligence to ensure that your investment is a sound one.
1. Know what you’re getting into. Buying the property and getting it ready to list is only half the battle. You’ll need to screen tenants, respond quickly to repair requests, collect rent and engage in other responsibilities. If you’re more interested in the financial side of investment, consider using a property manager.
2. Get your financing in order. If you’re planning to mortgage the property, you’ll need 20 to 30 percent down and you’ll pay a higher interest rate than you’d pay for a primary residence. You’ll also need to have several months’ worth of expenses saved. This cushion covers your expenses during vacancies. Order a copy of your credit report well before you’re ready to buy so you have time to clear up errors and make good on any outstanding derogatory items.
3. Find a great real estate agent. An agent with experience in representing investors can research available properties faster and more efficiently than you can research them on your own. Be upfront with the agent about your motivation, your budget and your financial goals. Partner with an agent who’ll work with you through the whole process, from buying the investment property to leasing it and managing it, if you decide not to manage it yourself.
4. Do your homework. Work with the agent to research rents. Tour a few available units with solid rental histories to get a sense of what you can expect to charge for the type of property you’re looking for. Also sit down with your agent to review rental market data for the area where you’re interested in investing to see what features are likely to earn the best return on your investment. Know, for example, the ideal number of bedrooms and baths and the most appealing locations. Yard size and the existence or absence of a basement and garage are other factors to consider.
5. Order inspections. A thorough inspection by a licensed home inspector is a must, no matter how experienced you are in home improvements. Depending on the location and your lender’s requirements, inspections might include air quality, well, septic, water quality, wood-boring insect and radon in addition to your structural inspection.
6. Bring in a contractor. Your state law may prohibit your home inspector from offering an estimate for the cost of necessary and recommended repairs. For that you need a contractor. Get several estimates, and add 25 percent to the one you choose. Get the contractor’s guarantee that the work will be finished by a specific date, barring situations beyond the contractor’s control, such as weather or material availability.
7. Beware of properties that need more than cosmetic repairs unless you can afford a delay before listing it for rent. The faster you can whip the property into shape and get it listed, the faster you’ll see a return on your investment.
This guest post is by Daria Kelly Uhlig. Daria is a real estate agent and works for SurfWear, as a social media marketing consultant in the Pocono Mountains region of Pennsylvania and on Maryland’s Eastern Shore. She writes for numerous business and finance Web sites.
*source of image: liveinthephilippines.com