Tips for Buying a Rental Property

Real Estate Agent with Smart Move Real Estate 5958
Tips for Buying a Rental Property Posted on December 30, 2011 by Realty Executives A college crowd can increase turnover and wear-and-tear. There are plenty of reasons to purchase rental properties. They can provide steady, passive income when the housing market is slow, allowing you to sell only when conditions are right. They can allow first-time buyers to enter the market when they’re priced out at home, and are an excellent way to build equity in a retirement or vacation home. Whatever your reason, if you’ve decided to buy a rental property, follow our five tips to make the process as smooth and economical as possible. 1. Do not expect a quick profit If you have visions of flipping your rental property in just a few years, stop now. Historically, rental properties have been an excellent source of long-term income, but their resale prices are based more on income streams than spikes in home prices. This is particularly true of multi-unit dwellings, and is even more pronounced in a depressed market. There’s little debate that you will be able to sell your rental property at a tidy profit some day, but unless your primary focus is on building equity and earning passive income over time, you’re in the wrong part of the business. 2. Know your market Generally speaking, you want to buy a rental property in the best neighborhood you can afford. An ideal neighborhood would have low crime, a population influx, and proximity to transportation, employment, and amenities. Of these, crime is the most important, as it has a direct impact on your tenants’ comfort level and potentially impacts the physical safety of your investment. Even beyond statistics, the character of your neighborhood is important, as well. A 3-bedroom duplex will have faster turnover and receive more wear-and-tear in a college town than a sleepy family community. A high-end rental home in the suburbs might be a short-term fix while a couple searches for a purchase, but the same home in an urban area could be a long-term rental for a busy businessman. 3. Play the waiting game If you price your property too high, you may lose money on an extended vacancy. If you price too low, you risk losing money over time. After you have a few years of ownership in your neighborhood under your belt, weighing the trade-offs will become easy, but when you’re starting out, you’ll want to seek the advice of an experienced professional. Start by asking your REALTOR©, who may be able to refer you to other rental property owners. 4. Know your tenants Bad tenants will damage your property, run up maintenance bills, call you (or your management company) at odd hours, and leave you holding the bag for months of rent when they abandon your property. Good tenants provide a predictable revenue stream and respect your investment. Do not cut corners with due diligence when choosing a renter. Credit checks are important, but checking references is critical. Once you find your perfect tenants, be open to working with them. Be flexible with improvements or changes they’d like to make to the property. If they’re going through hard times, a minor rent adjustment could be well worth the long-term payoff. In the end, you need the tenants as much as they need you. 5. Be prepared Rental properties require a fairly substantial cash reserve, as well as other preparations. You’ll want to be able to cover several months of mortgage payments to address vacancies and payment processing time. Rental properties require a larger downpayment (often 25-30 percent) than evidential properties, so budget accordingly. You should also line up contractors and maintenance staff as soon as you purchase a property. Again, your REALTOR© or network of other landlords can point you in the right directions. Check references, pre-negotiate rates, and ask for backup referrals for times when your primary contractors are not available. Be sure to ask your tenants for feedback on the contractors’ work and conduct, as well. This entry was posted in Buyers, Buyers, Finance and tagged contractors, hiring, home maintenance, investment properties, investment property, property management companies, rental property, rentals, renting your home. Bookmark the permalink.

Comments (1)

Joseph Althage
I-Spy Home Inspections, LLC - Hammond, LA


Just thought I'd post a quick comment after reading your blog post. The information on rentals and/or flipping is helpful and pertinent in my opinion. It was perfect for a neighbor of mine who has several rentals and is always looking for more despite his impulsiveness and overall success with investments. I believe he does well because his invenstments decisions never involve flipping a house. He's in it for the long term and solely to provide rental income. Sooner or later he may even get away with retiring and living off his rentals alone. That's his goal anyway.

I passed the info you posted on to him.

Thanks for the read!

Joseph Althage LHI #10781 IAC2 #02-4743

I-Spy Home Inspections, LLC

(985)277-9252 Northshore

(504)255-5608 Southshore

May 21, 2012 12:00 PM