3 Things To Know Before Purchasing A Rental Property

tips purchasing real estate property management landlord duties tips

Nowadays, a lot of investors are throwing more money into real estate than into the stock market. Who can blame them? Real estate can be tremendously lucrative to careful investors—especially rental properties. 

Rental properties are popular with real estate investors because investors can gain substantial earnings from the rent paid by tenants. But it’s not all fun and games, from a financial perspective. Rental properties can pose a high risk to investors, partly because a property is an expensive purchase, and also because there are challenges that come with being a landlord. 

Know these 3 important things before you purchase a rental property. 

1. Study The Market Before You Buy 

You shouldn’t buy a property just because it’s nice, or because it comes at a good price. Always do a careful analysis of the real estate market that the home is located in. The market should clue you in to how much money you’ll realistically be able to make from the property. 

A property might come at a great price, but what if it’s located in very run-down neighborhood? There’s a good chance that you’ll have a difficult time persuading tenants to move in, or you might have to drop rent so low that you won’t actually be able to turn a profit. 

Also consider whether or not the real estate market is going to turn around in that particular neighborhood. For example, if the run-down neighborhood is going to be redeveloped in 5 years, it might be a wise investment to buy the property while it’s cheap, before redevelopment spikes the home prices in that area. Always be sure to account for the present and future worth of the property. But don’t kid yourself—if a property looks like it’s going to be low-valued for years to come, it might not be worth your time. 

2. Prepare Yourself To Become A Landlord 

Here’s a critical component that many rental property owners forget about: being a landlord. Because you own the property, it’s your legal responsibility to provide a habitable living space for your tenants. You’re the one who must call in contractors to fix maintenance issues, like clogged toilets, pest infestations, and faulty HVAC systems. If you don’t take care of these things in a timely manner, your tenants are legally able to withhold rent until you handle maintenance. If you realize that you don’t have time to handle all these tasks, you might want to enlist a property management company to handle rent collection and maintenance. 

Chances are, you’ll have one or two bad tenants that you’ll have to deal with. These tenants might frequently break the terms of the lease, damage the property, or do illicit things on the property—there are plenty of horror stories about bad tenants. Be ready to hire an eviction service when you need it. It’s also important that you use a tenant screening service to get legal and financial background checks on prospective. Find an eviction check that is free for a landlord—you might not want to offer leases to tenants who have been previously evicted. 

But no doubt the hardest thing about being a landlord is trying to attract the best tenants to your property. Remember, whenever your rental property is unoccupied, you’re losing money. And you’d be surprised at how difficult it can be to get good tenants. If demand for rentals is low, you’ll have very few interested tenants. If demand for rentals is high, you’ll have to compete for tenants against other rental properties. Be sure to prepare some effective digital marketing strategies that can put your property in the spotlight. 

3. Get The Right Loan 

Most investors use investment property loans to finance their rental property. Unlike traditional mortgage loans, investment property loans are paid off in only a few years and may yield high monthly payments. They’re advantageous to real estate investors because investors typically need to start making profits on the property as soon as possible—which means they need to get the loan paid off quickly. The investor can use tenant rent to help pay off the loan. 

It’s important that you budget correctly. You’re going to have a high monthly payment on the property, and you won’t immediately have tenants living in it and paying rent—basically, you could lose a lot of money in the first two months. Make sure you budget for that. Also make sure that you buy the right property for your budget; you need to make sure that you’re able to charge sufficient rent that’s low enough to attract tenants, but high enough to help you make the monthly payments that the loan requires. 

Manage Property Properly

There you have it aspiring landlords! So long as you properly evaluate the real estate market, get the right loan for your budget, and prepare yourself to handle landlord duties, you’ll be ready to make huge gains from owning a rental property.

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