How to Buy a Rental Property

Purchasing a rental property can provide you with a solid investment that brings in regular cash flow for you. Here are the basics of how to buy a rental property and what you should do once you purchase one.

Locate a Property

The first thing that you will need to do is locate a rental property. In most areas, there are a number of properties that you could consider purchasing. You want to purchase a property that is in fairly good condition in most cases. Sometimes, you may be willing to take on a project that requires a little more work if you get a good deal. Try to put an emphasis on finding a quality property that you can keep rented.

When you are evaluating potential rental properties, take their location into consideration. You are going to be able to keep a rental property in a good location rented more easily.

Once you have located a few different potential properties, you need to narrow them down to the most profitable one. You need to determine what the market rent for each one of these properties is going to be. Then do a cash flow analysis so that you can more easily determine which property is going to be the most profitable. For this part of the process, it would be advisable to work with a real estate agent so that they can help you find a property that meets your criteria.

Down Payment

When you purchase a rental property, you are not going to be able to get 100 percent financing in most cases. The lender wants to see that you have some of your personal assets invested into this deal. They will want you to be able to provide a down payment for the loan of at least 20 percent of the purchase price of the property. If you can make a larger down payment, this can potentially lower your interest rate from the lender. 

Getting Approved

The lender is then going to evaluate your application for approval. Your loan application will go to a loan underwriter, and they will evaluate it. They will look at your credit score, the amount of income that you bring in and several other factors. If the loan appears good to them, they will approve your application. They will then provide you with the money that you need to purchase the property.

Resident Landlord

If you are purchasing a multi-unit property, you might want to consider being a resident landlord. Many people utilize this method because it provides them with a way to save money on the mortgage payment. You will be able to receive enough rent that it should cover the majority of your payment. You will then have a place to live, and you can oversee the operations of the property from up close.

Hiring a Property Manager

If you are not going to live at the property, you might want to consider hiring a property manager. This will provide someone to watch over the property for you and handle many of the issues associated with it. The property manager will collect rent and handle tenant problems and maintenance issues for the property. 

Residential Rental Property

With residential rental property, at least 80 percent of the money generated from the property comes through residential rental income. These types of properties could be single-family homes, duplexes, apartments and other types of residential properties. Hotels and motels are not considered residential rental property. Residential rental property involves a more long-term arrangement between the tenant and landlord. Investing in residential rental property can be a good way to develop a source of passive income for the investor. The money continues to come in every month as long as a tenant is in place.

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