Buying rental property can be a great way to build your wealth. There are very few differences between buying your own home and buying rental property. Here are a few things you need to know before you begin investing in real estate.
Do Your Homework
This part can be difficult because you might not know what questions to ask. Some of the questions you might want to ask include:
- What type of investment property are you interested in?
- How much property can you afford to buy?
- What neighborhood would you like to invest in?
- What is the average rental price for property in that area?
- What type of return on your investment are you looking for?
To answer these questions, you need to consult with some experts. Contact your banker or even a real estate attorney for advice and answers to your questions.
Make Your Plan
It is recommended that you put your plan down on paper to make it easier to refer back to when necessary. This is where you will decide how much house you can afford to buy. Set your price and stick to your goal. You don?t want to get distracted by a house that is way over your budget. By putting down your plan you will be able to stay true to your goals.
The most common mistake that home buyers make is not having arranged their financing ahead of time. If you go out searching for a home without having financing already in place, you run the risk of missing out on the perfect property. Having financing in place will also help you stay true to your goals, and your budget, by having a set amount to spend already in place. Be sure to talk to your banker about your spending limit before you go out looking for your rental property.
Find Your Property and Make an Offer
There are a lot of great ways to find a property to invest in. You can look on real estate sites such as Realtor.com or Zillow.com. You can even work with a real estate agent to find the property that is perfect for you. Typically, a real estate agent is paid by the seller when you buy a home. So for you, using your own ?buyer?s real agent? is at no cost to you personally. (Note: This applies more to a home already listed by an agent, as a seller for a home ?by owner? may be less negotiable on price if they agreed to pay your buyer?s agent commission.) A word of advice as well is that it might be helpful to find an agent that specializes in working with investors. They will be more aware of what makes a good rental property, and they will be able to help you stick to your goals by only showing you property that is in your price range.
Once you have found a property you would like to buy, the next step would be to make an offer. The real estate agent will complete the paperwork and submit the offer to the seller. There will most likely be some negotiation. Keep your purchase amount in mind and be willing to walk away if things don?t go your way. If you can?t agree on a price that is suitable for you, then it?s time to look elsewhere. Not having a deal is better than being stuck with a bad deal.
If you are successful with your offer, there are a few things you need to remember regarding the nuts and bolts of the purchase agreement. Some of these include the closing date deadlines, inspection contingencies and deadlines for requests to make repairs, the seller?s financial concessions, and more. All of these things are part of your offer and should be spelled out clearly in any well-written contract. Do your due diligence and do what you have to do according to your agreement with the seller. Also, it is always recommended that you hire an inspector to inspect the property. If something is found, you may need to go back and re-negotiate with the seller on who will conduct the repairs and/or whether there will be a reduction of sale price in lieu of repairs. This is an extremely important step, as you don?t want to get stuck with a property that eats into your expected profits due to costly maintenance issues.
You Are Now a Landlord
The deal has been done and now you are a landlord! Now it is time to learn how to rent out your property, how to be a successful landlord, and how to screen your prospective tenants. Some helpful links include:
- How to Rent Your House: The Definitive Step by Step Guide
- How to Be a Landlord: Top 10 Tips for Success
- Ultimate Guide to Tenant Screening
There are so many things for you to consider when investing in a rental property. The smartest thing you can to is contact an experienced real estate attorney at Sherer Law Offices. We can walk you through the steps you need to make the best investment possible. We also will review real estate contracts and help steer you in the right direction for buying your rental property.