By Grace Bloodwell
May 9, 2006
May 9, 2006
Difficulty: 
Cost: 
If you are eager to become a landlord or you think that you have a good lead on an area of the city that would provide some great rental income, here are some tips on how to be successful in the realm of rental property. Investment real estate can be fruitful, but you must choose your property, your agent, and most importantly, your location carefully.
- Location, location, location. You have heard it before; real estate is all about location. If you plan on purchasing a multi-family and renting it out for income, you must first find a place with a healthy--and hopefully booming--rental market. College cities and towns can be a great place to buy investment property since some students choose to live off-campus, and still more end up staying at least a year or two in the city where they went to school. Schools with large populations and graduate school programs are particularly good for rental income. Other locations to consider are cities in general (since people want to live close to where they work and close to the exciting city life). Rural communities and suburbs (unless they are very close to public transportation into the city) can be less fruitful.
- Get an agent. Though you must do research about the community on your own, rely on an agent to do much of the legwork. Have an agent show you the rentals in town and get a firm grasp on what the market values are for one, two and three bedrooms. Make sure you pay attention to the caliber of renovation in each unit, as a three bedroom with new granite countertops and stainless steel may go for triple the amount of a bigger, but more run-down rental in the same area of town. Your agent will help you find a good rental property and will estimate the amount of income you might be able to generate with it.
- Get a terrific mortgage broker. Getting financing for your rental property is crucial. You should be speaking to a mortgage broker even before you step foot inside a real estate office. Knowing how much you can afford is key to this process. Make sure your mortgage is less than the amount of income you will get from your renters. Usually this will require a good deal of money down and a low interest rate. Speak to your advisor about the possibilities, and remember to shop around for mortgage rate--they can vary widely.
- Fixer-upper? If you are handy (or have the cash to hire a contractor), it may be a good idea to get a fixer-upper to convert into rental properties. But, be wary. Sometimes the cost of renovation far outweighs the benefits of renting. Some owners find that after the work is done, they might as well turn the units into condos and sell. If you are not up for a full-on project, steer clear of "contractor specials" that arise on the market.
- Buy an existing cash cow. Cash cows are hard to come by, but if you take over a property that has existing tenants and a positive cash flow, you cannot go wrong as long as the building is not about to topple over. Sometimes older members of the population, tired of the landlord game, will give up their properties. Have your agent do a cash analysis of the rental income and the sales price to determine which homes on the market may be a good deal. Have an inspector make sure the building follows all building codes and that it is in good shape before you purchase. I suggest getting all the inspections possible, including structural and pest--just to make sure you aren't buying into a money pit.
- Legal advice. It is always a great idea to have legal counsel for any real estate decisions. A lawyer can also help you with any issues that may arise with your tenants, and will provide you with assistance during the closing of your investment property. Have a contact ready before you make any purchases and consult him or her with any questions that may arise during the buying and renting process. Not all people will use a lawyer, but it is a good idea.
- Make an offer. As always, you cannot lose by making an offer. If you see a property that you really like but it does not "cut it" on the financing side, make an offer anyway. If it is a buyer's market you may be surprised at how willing the seller is to meet your price. You never know.
- Property managers. Once you secure an investment property, you need to find someone (if you are not going to do it) to be your property manager. This person will be on-call for any problems that may arise in your building. If you live out of town, a property manager is crucial. If you do not want to hire a property manager, at lease formulate a list of reliable handymen (plumbers, roofers, carpenters, HVAC company) that you can call on should any problems arise.
- Get tenants. Have your agent advertise your rental properties at a price where you can make money on your investment. When you have your applicants, make sure you examine their credit, job history, references, and if possible, you should meet them. If you choose tenants that destroy your property or those that do not pay rent, you are not "gaining" with your investment. Always, always get a security deposit in addition to--or in replacement of--a last month's rent. Put any and all stipulations in the lease (no smoking, no pets, etc.) and make sure the tenants understand the terms and sign where appropriate on the lease.
- Bank account. You will want to speak to your financial advisor about your bookkeeping, but remember that investment property entails a whole new set of IRS regulations and accounting nuances. Check with your accountant about the best way to keep your records. It is a good idea to line up all your help up (mortgage broker, property manager, real estate agent, lawyer and accountant) prior to making any purchases. Investment property can be a great source of income, but as with everything, advance preparation is the key to success. Good luck and enjoy being a landlord!
No comments:
Post a Comment