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 and 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 purchase. If the market is competitive, due diligence and a keen understanding of the market value and rent prices is critical before you submit that offer.
The price may not be your driving factor when looking at vacation or short-term rental properties. It is important to look at data on 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 property that is not owner-occupied. I strongly encourage my investment buyers to consult a lender to understand current loan programs and interest rates. For a rental property, lenders typically want to see a 25% downpayment. It is also critical to consult your tax advisor and attorney to discuss the type of entity best suited for purchasing the rental property and how best to structure the purchase to optimize tax advantages.
Hire a property manager
Now that you’ve researched the market and know which type of rental you’re interested in and how you’ll pay for it, you will want to do the math regarding income, expenses, and capitalization rate. Another important step is figuring 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 and 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 researching your market, making prudent decisions, and working with a team of professionals to ensure you make the best decisions to meet your short- and long-term goals. My team and I are experienced in all facets of investment property and are here to assist you. We own income property and have helped many investor clients make smart purchases.
Written by Kristin Louis, edited. Photo by RODNAE Productions from Pexels