Investing in real estate can bring real advantages. As Investopedia points out, landlords have the opportunity to make money through rental income and appreciation, and the benefits don’t stop there. In addition to a stable cash flow and passive income, the financial pluses to owning a well-managed rental property include tax advantages, diversification, and leverage. Are you wondering how to buy property and rent it out?
Guide on Buying Property and Renting It Out
Not every property is a good investment, so if you’re interested in generating wealth as a real estate investor, you need to proceed with careful consideration. Taking the time to learn how to buy property and rent it out successfully will help you make a smart investment.
Start with Research
Is buying an investment property a good move for you? To find out, educate yourself. Money Under 30 urges anyone contemplating becoming a landlord to do their homework first. Talking to other rental property owners about their experiences can help you mimic their successes and avoid common missteps. Next, create a reading list that includes articles by investors with different approaches and experiences, information about what being a landlord entails, and insights into the market where you hope to buy. You may also find educational courses aimed at novice landlords valuable. Knowing what to expect can help you plan effectively and move forward with confidence.
Get Your Finances in Order
Investing in a rental property requires a financial commitment, so prospective landlords need to get their finances in order before taking the plunge. Investopedia suggests paying down personal debts and putting together a down payment of at least 20 percent. If you plan to finance your purchase, it’s important to remember that some popular loan programs can’t be used for rental properties. Explore your options, and put together a solid strategy.
Choose the Right Property
What should you look for in a rental property? Mashvisor suggests choosing a location with the following qualities:
- Rental properties are in demand.
- The area seems safe and welcoming.
- The rental property is located in a good school district.
- Laws and regulations are not overly strict.
- The ratio of house price to annual rental rates is low.
- The property will generate a positive cash flow, so you’ll turn a profit.
How can you tell if a property will generate a positive cash flow? While there are numerous factors that need to be weighed here, Forbes suggests that the 1-percent rule offers a good starting point. Basically, this rule states that the rent generated by a property should be 1 percent or more of its total upfront cost, which includes its purchase price, closing costs, and the price tag for any repairs needed to make it rentable.
Be Smart About Tenants
Tenants who cause damage, fail to pay what they owe, or cause problems within the community are a nightmare that can send a landlord’s stress level soaring even as the profitability of their property sinks. As a real estate investor, your goal is to find a tenant who will treat the property with respect, pay their bills in a timely fashion, and not cause unnecessary headaches. Screening prospective tenants effectively is vital to achieving this. According to Money Crashers, the process should include the following steps:
- Use an application that includes financial information, employment information, and personal information. Include a statement that a background or credit check may be ordered and that the prospective tenant is granting authorization for these checks by completing and submitting the application.
- Run credit and background checks. Consider contacting the applicant’s employer or their previous landlords.
- Interview the tenant.
Treat It Like a Business
To get the most out of your investment property, treat it like a business. Keep proper records and maintain a professional demeanor when dealing with your tenants. As The Simple Dollar notes, having a solid lease and enforcing the conditions in it consistently makes it easier to manage expectations and avoid miscommunications and other problems.