Tips for Buying Rental Property
Whether you’re a seasoned real estate investor or just coming into the business, everyone can benefit from these tips for buying rental property. This type of investment can be a great way to make money, as long as you’re willing to work hard and face the adversities that may come up from time to time.
Though the process of finding and buying rental property doesn’t differ that much from a home purchase, there are still a few key factors during the process (and even after) that are important to know. As with any investment, knowing exactly what you’re getting into beforehand is critical to a smooth transaction. So, let’s take a look at some important elements in your decision-making!
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Influential Factors for Investors
- Choosing the right area in which to invest is crucial. As always, location is the key, and there are a few things to reflect upon before making that final decision. The neighborhood is one of the most important aspects to consider, because it will determine the types of tenants you attract and how often you have vacancies. For example, if you were to rent out spaces near a university, remember that students may be gone several months out the year. If that doesn’t appeal to you, make sure to broaden your search.
- Don’t forget to check out local amenities. Research which parks, public transports, libraries, and movie theaters are nearby – these will always attract families and young adults to your rental. Also keep an eye out for future projects in your prospective city, as this can either negatively or positively affect the neighborhood. For instance, if a new sports stadium is planned nearby – it could be a plus for proximity, but a negative for the traffic on game days.
- Research the local job market before you buy a rental property. A city with growing employment means more people relocating, which will widen the tenant pool. Again, this could have a positive or negative impact – depending on which type of company moves in, so it’s important to keep a close eye on that.
Caution Signs for Income Properties
Although buying rental properties can be a profitable investment, there are downsides to be considered – as with any substantial financial commitment. Let’s go over a few of these tips for buying rental property which may affect your decision:
- If the property you’re buying was previously owner-occupied, you may want to look into your specific state’s landlord and tenant laws, which require certain safety features to be added to the property before you can even begin to think about advertising. Additions such as handrails, deadbolts, reinforced steel doorways, and peepholes among others can run you upwards of another $3,500 on top of the usual closing costs.
- As a landlord you’re still responsible for most necessary repairs. Though this isn’t too different from being a homeowner, landlord and tenant laws require you to make any serious repairs as soon as possible, or you could risk being held liable for additional damages. This means you could be paying out large amounts of money rather unexpectedly – so if you’re not sure you can handle the extra financial strain just yet, it may be wise to hold off on buying rental property.
- Hit or miss tenant history is one of the most unpredictable downsides in buying rental property. You’ll have tenants who will pay every month on time and never give you trouble, but you’ll also have those tenants who always pay late (or just stop paying altogether) or who cause you nothing but trouble.
- If a tenant goes too far, you have the option to evict them, but be aware that what seems like a simple process can be incredibly time-consuming and expensive process that can take months to complete. The expense can vary widely, depending on how long you are out on rent, and whether there will be any repairs to be made to the property. Do research your state’s laws to save yourself as much trouble as possible, in case eviction is your only option.
Overall, buying rental property can be a terrific investment, as long as you are very clear on what you’re doing ahead of time. There’s always a risk of losing money in a down housing market, but as long as you are diligent about researching and keeping up with the ever -changing housing market, and you follow these tips for buying rental property, you’re sure to make a profit!