Investing in the Future: Top Tips for Buying Rental Property

Buying an investment property can be an exceptional business move. If you’re delving into your first real estate investment purchase, it’s important to do your homework in advance to ensure you’re making the right buy at the right time and in the right location.

Demographic Research

Before making a purchase, you’ll want to determine what areas have the highest influx of new residents. You’ll also want to research the local market to get an idea of price ranges in various neighborhoods to help you understand how quickly you’ll need to act when the right deal comes available. While some areas have properties that sit on the market for months, others sell quickly, sometimes even above the asking price.

To make this step easier, it’s a good idea to work with a real estate agent who’s familiar with your desired market, so ask a friend or family member for a recommendation. For any agent you’re interested in working with, ask about their experience and areas of expertise, particularly if they’ve worked with buyers to find rental properties that turned out to be profitable.

What to Look For

Popular investment properties include multi-family homes, such as apartment complexes, condos, and townhomes, along with single-family homes. According to HSH, a newer property will give you peace of mind that a lot of systems, like HVAC, plumbing, and roof are in decent condition, while an older property may require renovation before you move in tenants, and more regular upkeep. Older properties can also become money pits that require above-average maintenance simply due to age. You’ll want to factor in issues such as the time and money you have to invest toward upkeep and the potential for lost rental income if major repairs are necessary. You’ll also want to consider the local crime rate, the resale value of similar properties in your area, and access to good schools and amenities – all things potential renters look for.

Managing Your Business

If you plan to purchase several investment properties, it’s a good idea to incorporate yourself as a small business, which gives you liability protections. You can hire an attorney to handle the incorporation, do it yourself, or use a business formation services company to handle the fine details – a move that provides a comprehensive approach and is considerably less expensive. You should handle this aspect of business start-up in coordination with developing a business and marketing plan, which you may need in order to obtain funding for your business. If you’re looking to secure an investment mortgage, being able to demonstrate you’ve done your research and are an established small business can give you an edge.

Finding and Keeping Tenants

You may find it beneficial to utilize a property management company to handle some of the daily activities of property ownership. Management companies typically work with relocation specialists and can help advertise vacancies, screen tenets, write contracts, collect rent, and troubleshoot day-to-day issues that require attention. If you decide to self-manage, you’ll need to research comparable rents for similar properties in your area, place ads, interview prospects, draft contracts, and be available for maintenance and repair issues, as well as handle the financial aspects of management. If you invest in a multi-family housing unit, you may find it helpful to live on-site or hire someone else to live on-site as a property manager.   

Investment property ownership can be a lucrative form of passive income, particularly when you’re buying in an area that has increasing home values. This ensures that you’re not only enjoying monthly rental income, but you’ll have an appreciating asset that you can sell for more than you paid for it in the future. To be successful, make sure you have all of your business operation functions well in hand to protect both yourself — and your company — from liability.

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