| | Some advice for 1st time Rental Property Buyers
What you need to do to get started in buying profitable rental properties
1) Decide how long you plan to own the property
The longer you plan to own the property, the more you’ll probably need to invest in maintenance, repairs and improvements. For many small investors, long-term ownership makes the most sense. You’ll have plenty of time to ride out any swings in the market, and rental income can make a nice supplement to your day job. Find enough rental properties, and being a landlord may become your day job.
2) Develop a network
Experienced landlords find their properties in a variety of ways. Some hunt for foreclosures, making friends with city hall clerks or bank employees who know which properties are about to be sold. Some run ads in local newspapers. Others work with real estate agents who keep their eyes peeled for possible buys.Several landlords recommended joining a local landlord or property owner's association to make contacts.
You also can try approaching landlords directly to see if they’re willing to sell, by calling the numbers listed on rental ads in the classifieds, by cruising neighborhoods looking for “for rent” signs or by talking to any landlords you know personally.
3) Get your finances in shape
Lenders usually require bigger down payments, higher interest rates and generally stronger finances when you’re buying rental property. That’s because they know people are more likely to default on investment property than they are on their own homes.
Landlords say it also pays to have a substantial cash reserve left over after buying a property. This can help pay for unexpected repairs and vacancies. Although there are few rules of thumb, setting aside at least one month’s rent for each unit is a good start as well as having a line of credit, secured either by the property or your own home, to cover larger costs.
4) Avoid overpaying
As one experienced landlord put it: “You make your profit when you buy a property, not when you sell it.” Pay too much, and you’ll never recoup as much as you could have had you driven a better bargain.
The rental real estate market is generally tougher on investors who overpay than on homeowners who do the same thing, several landlords said. While a home is often an emotional purchase, which can lead to “I must have it!” offers and bidding wars, most landlords look strictly at the numbers to see if their investments will pay off. If you pay too much for a rental, you can’t count on a “greater fool” coming along later to bail you out.
Every real estate market is different, however, and these formulas may not work in your area.
What’s key is to make sure your rental income will cover your out-of-pocket costs, Berning said. That includes the mortgage payment on the property, as well as taxes, insurance, maintenance, repairs and a vacancy rate of around 5%.
If you can at least break even, you’ll be able to profit from any price appreciation as well as from tax breaks available to rental property.
Last edited by admin : 02-26-2006 at 11:19 AM.