In our previous article we discussed the different types of rental property you may consider purchasing, and the first important steps in the process.  

So now that you have identified a property, you will want to have it inspected by a professional. You will want to know the condition of the roof, the foundation and all of the mechanicals of the property. This inspection will also help you know what kind of future expenses you may incur. Will you need to upgrade items for the benefit of your tenants and to make the property more desirable? Will those items need to be done immediately or at some time in the future?   You will not be in the property day to day to take note of any issues as they arise, and yet you are the owner and will have a vested interest in the upkeep of the property. You should have a budget for repairs and maintenance, and you will want to insure that your purchase price enables you make any necessary upgrades prior to renting the property. 

You will also want to be aware of the locale of the property, including parking and security issues. Be sure you are aware of zoning regulations and Homeowners Association rules about rental properties, multiple occupancy limitations and any restrictions on specific business activities. Understanding all of the governing regulations will make you a better landlord and investor. 

Legal documents, including your rental agreement between you and the renters, and service agreements between you and concerned parties are essential. You will also want to be aware of the additional – water, sewer, trash, utilities, homeowner association fees – who is responsible for those? You or the renter? Insurance is another important factor to consider, first off will be insurance for the structure itself but also consider liability insurance in case someone is hurt while on the premises. Do you need earthquake or flood insurance? Since you are responsible for the mortgage you will want to be sure you have all the right kind of coverage.   And will you require that your renter has renter’s insurance? Be sure you are clear about these fees up front, it will save headaches later. A real estate lawyer will be an invaluable asset to you! 

Buying a rental property is much like running a business; you will be collecting rents and incurring expenses for repairs and services. When profits are being realized and money is changing hands you may also want to have an accountant, one who is versed in real estate investments and the tax implications. Tax issues become more complex and a professional will aid you in maximizing your return on your purchase. 

Success in business is not accomplished alone, and investing in real estate property is no different. Developing a team of professionals will make your experience smoother.   We, as your real estate agents, will be there to help you with each step for a successful investment purchase – and when the time is right to sell, we will still be there for you!  

 

Many people have considered purchasing investment property, property that you then rent out to others is the most common type of investment property. While purchasing real estate is similar if it is a home you are going to live in or one you will rent out, there are also many differences.  

Purchasing rental property can be a great investment if it is done right. In addition to realizing gains from property value appreciation, the rental income can provide a monthly cash flow. Once the mortgage is paid off, much of your rental income will be profit. Since this is not a home you will be living in day-to-day the benefits of ownership differ. Rental property is a tangible asset that will directly impact your investment portfolio. 

Using sound judgment and following basic steps your rental property can realize gains, both short and long term. 

Investing in real estate differs depending on the type and location of the property you are buying. Will you want to use the property part of the year or on occasion? Vacation rentals are enticing on many levels, but you will want to consider how you will use them during “off season” rental times, this will affect your potential rental income. Will you purchase a commercial property that will be used for other businesses? Some investors purchase a multi-unit property where they can live in one unit and rent others or fix up some units while others are providing income. 

The first step is deciding what kind of landlord you want to be. This will help you narrow your search for the type of property that fits your style. Then you and your realtor can begin the search.  

As with any real estate purchase you will want to be pre-approved by a lender before beginning your search. The pre-approval process is slightly different when obtaining a loan for an investment property. You will want to be sure to have a healthy reserve fund in the event that your property does not rent quickly or does not produce the income you expected. Additionally you and your agent will want to research the rental market in the area you are considering so you will have a better understanding of the cash-flow potential. 

In the next couple of articles we will further explore the important steps for a successful investment property purchase.