Important Details To Consider When Buying An Investment Property
Owning real estate is an excellent way to build wealth. But, it’s not just buying then selling at a profit that can generate an income. Owning a rental investment property is a great first step toward creating a residual and mostly passive income. Here, we will take a look at a few ways you can establish your new rental business. Getting it right from the beginning will make it much easier to acquire additional properties in the future.
Research the market
When you’re thinking about a rental, you typically have two options: long-term or short-term. A long-term lease might be a house or condo where your tenant signs a lease for one year or longer. A short-term rental might be an executive apartment, AirBnB, or a vacation home. Regardless of which scenario you choose, research is your best friend.
When researching the market for a long-term rental, start by looking at the selling prices of homes in the area you target for a purchase. If the market is competitive, due diligence and a keen understanding of market value and rent prices is critical before you submit that offer.
When looking at vacation or short-term rental properties, price may not be your biggest driving factor. It is important to look at the number of tourists visiting the area and/or how many large companies are in the area and could support the need for short-term executive housing.
Decide how to buy your property
It is important to consider your financing options for a non-owner occupied property and I strongly encourage my investment buyers to consult a lender to understand the loan programs available and current interest rates. For a rental property, lenders typically want to see a 25% downpayment. You can apply for a loan in your name, or you may consider setting up an LLC (limited liability corporation). Buying properties as an LLC (your real estate attorney can assist with this or you can look online for a DIY solution such as LLC formation services), can provide protection of the asset in the event of an unexpected issue.
Hire a property manager
Now that you’ve researched the market and know which type of rental you’re interested in and how you’re going to pay for it, you will want to do the math regarding income and expenses, and capitalization rate. Another important next step is to figure out how you plan to run your rental property business. You may want to hire a property manager to help manage the property or properties. In addition to potentially saving you money, a property manager will also help you with marketing for new tenants and will coordinate housekeeping and handyman work when needed.
Investment properties can generate annual income as well as long term asset appreciation, putting you on the path to creating wealth with tenants paying your monthly overhead. Be sure to start off with a strong foundation. This means doing research on your market, making prudent decisions, and working with a team of professionals to make certain you make the best decisions to meet your short and long term goals.
Written by Kristin Louis, photo by RODNAE Productions from Pexels