What You Should Know Before Purchasing a Rental Property

Real estate investment is an attractive option for investors looking to make some supplementary income without having to quit their day jobs, but purchasing rental properties isn’t always as straightforward as it seems. Consider the following facets of the business before going all in.

Become Well Versed in All Things Real Estate

Watching HGTV religiously and buying a “Real Estate for Dummies” book isn’t going to cut it if you’re looking to make a real go of rental property investment. In order to turn a profit and run a successful business, you’ll need to put in your fair share of research and determine the best strategies for success in your real estate market in particular. Attend as many seminars as you can handle, speak with local investors already involved in the real estate sector, and read as much literature and research about the industry as you can find. Education is power, and the more you know about your market, the better you’ll do.

Finding the Financing

Do you have a bank account filled with cash? If not, consider how you’re going to finance your planned real estate venture. Will you pursue traditional loans from banks and other traditional lenders? Or will you pursue the help of private lender through a site like P2P-credit.com? There are many costs that come along with a real estate venture, including the hefty down payment you’ll need from the get go, the interest that comes along with loans, and property taxes that you’ll be saddled with for the years ahead, along with money for necessary repairs, especially if you’re planning on doing a fix and flip for profit—hint, hint: It’s not always as easy as television makes it out to be. If you’re dealing with less than stellar credit but still want to make your mark on the real estate industry in your area, consider approaching a hard money lender. While these loans usually charge higher interest rates than other loan options, if you’ve had no luck with other sources of traditional loans, this could be a great and immediate answer to your problem.

Are You Handy?

Are you well-versed in simple home repair, as well as some repair issues that come along with maintenance that might be not so simple? If not, prepare to have money set aside to hire professional help any time a maintenance issue arises. As landlord and property owner, you’ll be liable for correcting any problems that occur while a tenant is living in your property, and you’ll be expected to do so in a timely and efficient manner. If you don’t want to deal with this added stress, consider hiring the help of a property manager to handle the daily chores—just be prepared to hand over a chunk of your rental income each month.

Picking the Right Property

Once you’ve determined which type of funding you’re going to pursue, it’s time to find the house of your rental property dreams. One of the top mistakes made by overeager investors is their decision to purchase the first home out of the gate. Take your time, and invest the necessary resources into securing the right place for the right price. If you plan on managing the home yourself once you’ve placed tenants, you’ll want something ideally within an hour radius, but most hands-on landlords prefer a house that’s in the same town to make for an easy drive should anything require immediate attention. Check through listing websites, consider hiring a real estate agent that could give you access to foreclosure listings, and make sure you don’t settle for something that simply doesn’t match your business and financial expectations.

Finding the Best Tenants

One of the major concerns every landlord faces is placing the right individuals inside their property. Beyond running the usual credit check for tenants, you need to take your time choosing. It’s understandable that you want someone in your space as soon as possible, after all, that means a rent check in your pocket sooner. However, placing the wrong tenant can result in a myriad of problems, both monetarily and legally. Screen multiple prospective renters, host open houses so you can get a feel for the demographic your ad and property currently entice, and make a list of the qualities you’d like your dream tenant to have (just be sure these qualities don’t violate the Fair Housing Act, or you’ll find yourself in hot water in no time).

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