Rentals: Consider This When Investing
Avoiding mistakes too many people make when they invest in a rental.
When you’re thinking about buying a rental property, there are a few things you need to consider.
The first thing is that you need to save up some money to make the purchase. This can be as low as 3% if you are planning on living there for a while and getting an FHA loan or as much as 5% if you are considering a conventional loan. There are a lot of options when it comes to financing your first rental property.
I definitely recommend you stick with long-term rentals, as they present fewer risks and expenses to the owner. Plus, if you go with long-term rentals, it’s easier to grow your portfolio with a minimal amount of work.
My favorite strategy is to target single-family homes. If you go with something like a condo, or another situation where you have an HOA, that can really eat into your profit.
Another thing to consider is where you are buying. You want to be looking at popular areas—areas where people want to be. I tend to like purchasing properties that are closer to the inner part of the city.
“There are a lot of options when it comes to financing your first rental property.”
I use the MLS to see what comparable properties have rented for in the last couple of months. This helps to make sure that my rates are in the right range. I also like to keep to a one-year lease and renew every year. You don’t want to be locked into a multiple-year lease with a bad tenant.
I limit my risk by over-improving the property and getting multiple applications for the property. That gives me a selection of tenants to choose from, and I can go with the best one.
When it comes to using a property manager, you have to look at what your costs will be versus the benefit of having a manager. The average cost of a property manager is around 10%, so you want to make sure that you’re still turning a profit after factoring that in.
The easiest way to find a good rental property is to work with an experienced agent. They can help you track down a place with the right qualities and cash flow to make it worth your while. Feel free to call or email me, and we’ll sit down to create a strategy that works for your situation.