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why rental?

If you’re thinking of investing in rental property, you’re on the right track. Rental properties are a great way to create passive income and build wealth over time. But buying your first rental property can be daunting – especially if you’re not sure where to start. In this post, we’ll walk you through the process of buying your first rental property. We’ll cover everything from finding a property to financing your purchase. So read on for tips on how to buy your first rental property!

Tip #1: DO YOUR HOMEWORK

The best way to find a rewarding rental property is by planning ahead. Before you get too far, you need to plan what you want to do and how you plan on doing it. Are you looking for a single or multifamily property? What type of area are you looking to be in? Do you have a specific price range in mind? Are you going to manage it yourself or seek the help of a property manager? These are just a few of the questions you should answer. You should have a good idea of your goals and how you plan on achieving them before you do anything else. As rewarding as a rental property can be, it can also engulf your business if you get involved in a bad property. Once you know the area and type of property you are looking for, you can begin to get involved with the numbers.

Tip #2: CHOOSE THE RIGHT lOCATION

One of the most important factors in buying a rental property is its location. The golden rule of real estate investing still applies: proximity to desirable areas will contribute to increased demand and value, which means landlords can increase their asking prices as well! As a result, prospective landlords need to be aware of where they intend to buy. The location in which a property is located will determine many factors, not the least of which may dictate how the property is run. If, for example, the property is acquired in a tourist destination, it may be better served as a vacation rental. Properties close to college campuses may be best suited for student housing. Case in point: The home location will determine just about everything moving forward, so learn about a location before buying in it.

Tip #3: Legal Obligations

Landlords are held to strict legal obligations. In addition to the leases their tenants sign, each state will levy its own laws, to protect both landlords and tenants. That said, it pays to know the laws you must abide by when acting as a landlord. Nothing will derail a successful real estate investment faster than ignorance of the law. Before buying a home, make sure you know exactly what you are getting into and the steps you can take to mitigate risk.

In landlord tenant law, landlords are responsible for five key areas. First, landlords must oversee the management of the security deposit. State laws dictate how much can be charged. A landlord is also required to disclose the owner of the property. Essentially, this disclosure means clearly telling the tenants (often in writing) who owns the building and how to contact them for rental payments, maintenance issues, and more. Landlords are also in charge of disbursing keys or delivering possession of the unit to tenants.

 

Tip #4: Choosing Financing

The first step to investing in a rental property is choosing the right financing. There are many options, but some will have more benefits than others depending on what you want out of your investment, if it’s long term appreciation or monthly cash flow? Both of these start with what type of financing you use. The higher your monthly payment, the less cash flow that is available. Most investment loan programs require anywhere from a 20 to 30 percent down payment. Additionally, the homeowner’s insurance is typically higher than an average primary residence. If you are using a property manager, they will typically charge 8-10 percent of the monthly rent.

Finally, you need to have a reserve fund for the inevitable clogged toilet or broken appliance. You will often need more money than you thought, and the cash flow may not always be as high as you anticipated. Before you get any further, talk to your lender or mortgage broker to find out all of your financing options.

If purchasing a rental property seems like too big of an endeavor, there are other options that require less capital and less commitment. Consider partnering with a company that specializes in turnkey real estate development and fix and flips. They simplify the real estate investment process and save you both time and money.

Lakehouse Capital Partners provides real estate solutions for individuals interested in equity investments and trust deed lending. Focusing solely on whole notes fully collateralized in primary positions. You select the value-add property individually, and each loan is collateralized by the Deed of Trust to that property.

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