What You Should Know Before Buying Your First Investment Rental Property

What You Should Know Before Buying Your First Investment Rental Property

Believe it or not, the average national rent jumped by 17% last year.

If you're considering purchasing an investment property, now could be a great time to break in. Homes are in high demand and property values continue to climb.

Yet purchasing a property that you plan on renting out is a big decision. What do you need to know about an investment rental property before you take the plunge?

Let's take a look.

You'll Need a Mortgage

Unless you've got enough cash to purchase your rental property outright, you'll need to secure a mortgage before you can become a landlord.

Since there is a higher risk of default with a rental property loan, you'll probably incur higher interest rates and a more rigorous application process. Your credit score, ability to make a downpayment, and debt-to-income ratio will all play a role. You should also expect to provide proof of your employment and income.

You'll Need to Be Able to Charge Enough Rent

Maintaining a rental property is an important business, and you'll need to do some basic math before you invest.

Figure out how much you will spend to keep the property each month. This includes things like the mortgage, taxes, and home insurance.

You'll also need to decide if you're going to include utilities and cable or have your tenants be responsible for their own. In some cases, it may give you a competitive advantage to offer all of these services at one monthly fee to your renters.

Next, decide what you'll need to charge in rent in order to cover your expenses and make at least a modest profit. Is that amount of rent reasonable considering what similar homes are charging in the neighborhood? If not, it may be time to move on to a different property. 

Know Who Will Manage The Property

Some individuals are interested in purchasing property in mid-sized cities or less populated states. This gives them an opportunity to capitalize on the boom that's happening in smaller towns due to factors surrounding the recent pandemic. 

If you don't live in the neighborhood, however, you'll want to check out the home in person before you buy. It's also important to know who will be taking care of daily repairs and rent collection. If you aren't handy, you'll need to be able to partner with a reputable professional.

Choose Wisely

Before investing in a property, have an idea of what your ideal renter will look like. Is it a small family just starting out, or a young professional? If so, is there a good school district in the area or a local town center for entertainment?

You'll also want to consider things like transportation and proximity to office buildings. Do your research and make sure you're purchasing a home that tenants will be eager to live in.

Your Investment Rental Property

An investment rental property can provide you with a wonderful source of passive income and good tax benefits. With the right property and careful planning, you could be a happy landlord in no time.

Don't stop getting smart about strong real estate markets now. For more information on properties in up-and-coming areas, contact us today.