If you’re thinking of becoming a landlord, you may be wondering how you to invest in a property. There are certain steps involved in buying your first rental, so make sure to be diligent and carefully follow the process.
Do Your Research and Plan Ahead
Before you go through with anything, it is essential that you do some research on rental properties. It may be easy to start looking for homes right off the bat, but you have to know what you want to invest in first. There are a few questions you should ask yourself:
- What kind of property do you want to buy?
- What is your budget?
- What neighborhood are you looking to invest in? What kind of neighborhood is it? (i.e. Who lives there? What are the prospective tenants like? What is the vibe of the neighborhood? What are the main attractions?)
- What is the average rent in that area?
- How much of a return in investment are you planning for?
Make sure that you plan ahead and create a criteria for yourself. This way, you can make sure you will complete the goals you set. Besides questions about the rental property itself, you should also make sure you know how to manage a rental property on your own. Being a landlord requires a careful attention to detail and entails a variety of responsibilities beyond collecting rent. Be sure to check out our other guides for more information.
Many people who are looking to invest in a rental property often start looking for homes before cathey arrange financing. This is a common mistake that is made for good reason; it’s easy to get caught up looking at that beautiful front porch and huge pool. However, looking for homes too early without knowing your budget may end up being disappointing. It’s crucial that you visit a bank and talk about what you can afford and how you can arrange financing for your investment. There are lots of options for real estate financing out there, so make sure you weigh all of your choices before making a final decision.
Start Searching for Properties
Once you have set up a plan for yourself and finalized a budget, it’s time to start searching for properties. (Yay!) The best way to do this is through a multiple listing service (MLS) online like Zillow, Cozy, Realtor, Redfin, or Trulia. Most of these MLS sites usually have all the same listings with varying amounts of information. For this reason, you should contact a local real estate agent to help you find out more about the properties you’re interested in. Since real estate agents usually work for the sellers, their services are free for home buyers. You should try to find a real estate agent that has experience working with investors, as they will have more knowledge on rental properties. This way, you can be sure that you are getting the right property for your rental business.
After you’ve found the rental property of your dreams, it’s time to make an offer on the house and start negotiating. Your real estate agent will take your requests and budget into account and make an offer to the seller. From there on, the offer may be accepted or countered. Obviously, you want to try to get the property for lower than the asking price. A good real estate agent will be able to help you make the final decision.
Remember, you have to be able to walk away from the deal if isn’t what you want. If you let your emotions get the best of you, your negotiations will fall through and you may not make the right choice for you and your business. Always stay within your budget and think about the profit you are trying to make with your rental. Also, price isn’t the only thing you need to worry about. Consider these elements as well:
- Closing date
- Down payment
- Property inspections
- Why the house is being sold (foreclosure/bankruptcy, problems with the home, etc.)
Talk to the seller and the real estate agent about what you want and stick to it. As mentioned previously, it’s important not to get emotional — no matter how nice that front porch may be, if the deal isn’t right, it’s not worth it.
Finalize the Purchase
Once all the negotiations are over, you will need to finalize the purchase and inspect the home. Hiring a building inspector is very important, as you need to know if there are any issues with the property that were not mentioned before. If a problem is identified, then you will be able to re-negotiate the price of the home with the bank. You don’t want to be nit-picky, especially if you’re buying in a hot market, and walk away from a property that you really like. However, if there are major problems with the property, it may not be good to invest in it. Always keep your budget and goals in mind.
When you’re done with this process, during the time of “mutual acceptance,” you will make the final arrangements for financing with your bank or lender. You will also work with the title company or attorney, depending on how it works in your state, and finalize the purchase. Once the closing date comes around, you will “sign you life away” and read over all the important document. After that, congratulations! You’ve bought your first rental property.
Time to Be a Landlord
So, now that you own a rental property, it’s time to be a landlord. There are a lot of responsibilities involved with managing a property, so make sure you have a rock-solid lease agreement and that you screen your tenants thoroughly. That way, when tenants move in, your rental business will run smoothly. Make sure to check out our guides to gain more knowledge on becoming a successful landlord.