Want to know how to buy rental property? Real estate investment has always been one of the most secure ways to invest your savings as well as significant payback if you ever plan to sell that in the future. However, this is not the only way to ensure ROI (return over investment) from property investment. Owning a rental property, which exists in the right locality and neighborhood, can guarantee a better, immediate, and constant stream of monetary return.
Owning a rental property may not be rocket science, but it indeed is a science. The best way to buy rental property requires an effort, pre-research work, and a lot more. Especially if you had never purchased a property before or even if you did, it was not for rental purposes. It is a risky affair, and that is why it should be carried out in an organized way. You can spend time and effort going through the “owning rental property for dummy checklist or continue reading here for seven fundamental rules you must know before buying rental property.
Before we focus on answering “how to buy a rental property,” let us understand why and how it is different from other property investment decisions.
What is the rental property?
Rental property is a buying that where you plan to allocate it to tenants on lease and avail the monthly benefits without making much effort. However, during this entire process of buying the right rental property to managing it regularly while your tenants are residing inside under the active lease, a minor mistake can cause much trouble for you.
7 Tips to know how to buy rental property
1: Pre-research Work
One of the first steps do learning how to buy rental property is to not feel tired spending time in determining the best way forward as the effort you are going to do today is going to ensure that you make the right buying and get benefits for many years to come. There is no need to rush things even you feel that a potential rental property is slipping from your hand because you have a short time to make the final decision. Do not think for the short-term; always look into the long-term perspective and make the final choice accordingly.
2: Know your potential tenants
No, this does not mean to start looking for tenants. Instead, it is to see and understand the locality where you are considering owning a rental property. Go in there personally and see which social class people are already living in the neighborhood. Is it a commercial area where there are more business buildings, is it a residential area where there are more students living around, etc. Once you buy the property in the same locality, similar people will be your own potential tenants, and hence, you will face related issues. This matters when figuring out how to buy rental property.
3: Know your potential property sellers
Once you determine the locality and feel comfortable with all pros and cons that you understood from your extensive pre-work of knowing the locality, shortlist from whom you want to purchase the rental property. One of the most crucial where there are high chances of encountering fraud or twisted information. You can either look for properties yourself through real estate listing website or go to a property agent through common friends or references.
4: Work out the numbers, determine what is better: buying or financing
How to buy rental property is not as easy as stating you want to buy one – you have to know the numbers. It is not just the property price, which you keep in your consideration while buying the property – taxes, mortgage, maintenance, depreciation, etc. Everything should be in your calculation before making a final purchase. While most of the investment guides will recommend you buying the rental property in cash only, the long term costing and financial working may advise you otherwise.
5: Prepare yourself for being a landlord material
As a beginner in the rental property management, if you do not know the do’s and don’ts of being a landlord, you may face a difficult time in managing your rental property and tenants in the longer run. Therefore, when you are sure you are going to invest in rental property, along with looking into the best ways to buying the rental property, also start preparing to know the dynamics of being an owner and landlord.
6: Financials management
Other than the buying cost, you should also be ready for unexpected or unplanned property management related expenses. Though your intention to invest in the rental property was probably to get instant monthly revenue alongside having an asset, do not forget to save a part of the money for not just planned expenditures but also keep a reserve if anything goes south.
7: On-going rental management
Your involvement does not end with buying a rental property and having your first tenant inside the house under a beneficial lease. Please make sure you renew it promptly, pay attention to how your tenants are handling the property, maintaining it, and do not forget to redo the calculations for a better return on investment.
Conclusion
The key to buying the best rental property is keeping your eyes and mind open all the time. If you have any questions or queries, spend time as much as you want to, and only invest when you feel confident about the outcome. As you have learned, how to buy rental property is not as easy as it sounds at first, but you can be successful following these seven excellent rules.
