Rental properties are an exciting venture, that’s no secret. However, they too are fraught with a fair set of challenges and headaches. And when it comes to a major investment, it is imperative not to take it lightly; some careful planning, thought and research needs to go into it before you dip your toes into rental property waters as they can be deep.
To make things easier for you, here are a few tips that will keep you from going over the edge (you can always thank us later).
Research First; Advice Later
It comes as no breaking news to you that prior to making any major decision, some good research of the issue at hand is never an unwise idea.
Those who have taken the plunge already can be a good source of advice and tips. Sometimes, they reveal information you otherwise wouldn’t find anywhere else. But do your homework first before approaching them, and orient yourself with the business – read books and articles, attend classes or seminars, find out about the best locations in your area, take a look at the market and property value.
It’s good to be fully aware what you are about to get yourself into and what needs to be done to prepare yourself for owning a rental investment.
Understand the Market
Don’t make the mistake of investing in real estate, rental or otherwise, without understanding the housing market. You want to know things like how the market is performing at any given time as well as its outlook; you want to know what properties are going for so you can find a good deal.
If you are not sure where to start, a real estate agent can advise on the types of properties that are right for you (based on a host of factors) and help you find the best deals. The thing with this type of investment is that many people can have access to basically the same information and competition can lead to a surge in prices. This is why having someone who understands the nuts and bolts of the housing market by your corner can come in handy when it gets to making offers.
Think also about consulting a real estate wholesaler; a seasoned one, of course. These are just the go-to guys when you want to find a good deal.
Research the Rental Property Market in your Area
Look up what has been recently sold in your area and how much for. What is the range of the rent in that location, and for what type of property? Learn if there are any rental incentives you need to know about.
These tend to be very popular especially in places where competition is high.
In such cases, you may be better off looking for a different neighborhood if you don’t want the hassle that comes with playing the stag in The Bachelorette, as everyone looks to woo the tenant to their property.
Financing and Cash Flow
You need to be fully aware of all costs related to the rental property prior to applying for a mortgage, including repairs and maintenance costs. Being your largest cash outlay, it goes without saying that your mortgage is the most important cash consideration. Obviously, your credit history will determine if you will get one in the first place, and if you do, how much.
Just before you embark on your property search, check with a mortgage broker to get a glimpse into how much you can be approved for. This greatly helps in narrowing down your options.
Also, do some calculations and proper budgeting to determine the point at which you will break even. You want to know you will be getting a return on investment and ‘x’ amount of profit each month.
Above all, make sure this is going to be a worthwhile investment.
Locking in Equity
Know the retail market value and see to it that you get your rental investment at a 10-20 percent discount which will ensure you leave the closing table with equity. This guarantees future profit or at least a buffer in the event you have to dispose of the property prior to your estimated liquidation date.
Make sure you see the valuation calculations of wholesalers, if you happen to go through them, and compare them with your own.
Don’t forget, you are in control. The deal is only one if you say so. Have some limits and go with what works for you.