Buying a home can be a highly involved process. When that home is an investment property, things can get even more complicated. However, you don’t have to feel lost when it comes to becoming a landlord. By paying close attention to these investment property basics, you can ensure a smart purchase and maximize your rental profits.
Picking the Perfect Location & Property
Location is one of the most important factors in turning an investment property into a thriving rental. If you are currently considering buying a property, you will need to narrow down your search to specific neighborhoods. Try to stick with areas that are highly sought after and are in close proximity to well-loved attractions.
Other neighborhood features that you may want to look out for when searching for an investment property include low crime rates, higher median incomes, and a low percentage of homeowners. If you plan on marketing your rental property to families who are looking for a more permanent home, you should also research local schools, since this can play a huge part in parents’ decision to rent a home. You can also help increase your profits and your potential for new renters, by making sure you purchase the right home.
Finding the Right Finance or Lending Option
Financing investment properties can require different steps than securing financing for a residential home purchase. That’s because lenders tend to view investment properties as much bigger risks, since buyers will not be living in these homes. So before you begin looking for potential lenders to help you with your investment property purchase, you need to make sure your finances are in excellent shape. Since credit requirements for investment property loans tend to be much stricter, you can start by pulling a copy of your credit report. Check for any potential mistakes and look for ways to boost your score, if needed.
Having a high credit score can help you score a lower interest rate on your rental property loan, but just keep in mind that you will likely still need some sort of down payment. If you do not currently have enough saved for a down payment, you may need to take a step back and take a look at your budget to see if you can boost your savings and cut unnecessary expenditures. Saving can also be important because buying insurance for investment properties can also be more costly than buying insurance for a primary residence.
Making the Best Choice for Property Management
Managing a rental property can take some serious effort, especially if you are thinking about going it alone. In addition to collecting rent and maintaining repairs, both of which can be challenging on their own, successful landlords also need to find ways to market their homes to new renters, keep up with local ordinances, and ensure that any legal documents are properly filled out and filed.
You can certainly take care of these tasks on your own, but if that sounds like too much work, you can consider hiring a property manager. Before looking into this, weigh the pros and cons of using a property management company versus self-managing a rental home. You may be surprised to see that while self-managing can save you money when it comes to management fees, those savings can be negated by the amount of time you have to sacrifice to properly manage your rental. So unless you have a lot of time on your hands, it may be better to work with a property manager.
Landing your first investment property and turning that investment into extra income takes a good deal of research and work. So make sure you have the time and financial stability to make this sort of real estate investment really work for you.
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