A Step-by-Step Guide to Buying a Rental Property
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When planning for buying and investment property focus on the big picture.
Owning a rental property is exciting, demanding and may be confusing if you’re not sure what to expect or where to start. Here is an easy guide that will provide with step by step instructions to those planning on investing in rental property:
Step 1: Why Do You Want to Become Landlord?
One of the important steps is getting to establish the reasons and goals for why you want to become a landlord. This is a step that is often overlooked by most people before they put a lot of money in their investments.
Knowing why is important. Real estate investing is not a simple task, and it may be challenging – especially when managing the property.
Step 2: Why Your Credit Score Matters
A higher credit score means a lower the interest rate, while a lower score will force you into a higher the interest for securing a mortgage. This indirectly influences the amount of money you will pay over time until the mortgage is paid off. Always check your credit score and look for possible errors so that it is up-to-date and correct.
Step 3: Budget
An investment property depends wholly on the planned budget and it involves more than just paying the mortgage. In addition to regular mortgage payments keep in mind that you will be responsible for maintenance cost, utilities, taxes, upkeep, and unexpected emergencies. Weigh each cost against how much is expected from your target rental amount.
Research the comparison of rental properties in your target areas for a rough idea of what you can expect for a fair rental price.
Step 4: Research Loan Options
Mortgage loans come in a variety of options. The most common is a fixed rate loan. This means you are guaranteed a fixed interest rate over the life of your loan – usually for 15 to 30 years.
Step 5: Check For Tax Credits
Tax credits are available to all homeowners, even landlords! If your investment property is not new construction, consider renovations. It’s important to consult with a CPA to determine what expenses qualify as deductions, and what depreciate and what does not.
Step 6: Shop for Loans
Make sure that you obtain a loan from a lender that offers the base rate. You have options from mortgage brokers, banks, credit unions and even government sponsored programs may be available to you.
Step 7: Secure a Real Estate Agent
Find and hire a real estate agent who is knowledgeable about buying investment properties. The agent needs to know how to secure the best deals, what a potential property may rent for, trends that are affecting tenants, and what areas you are most likely to see a profit.
Step 8: Present an Offer
Remember, this home is an investment. Make sure that your agent negotiates the best possible price for the property.
Step 9: Appraisal
The appraisal for a property provides the lender with an estimate of the home value. Compare the appraisal against other similar properties in the area. You can cancel your offer to purchase a home if the appraisal comes in low.
Step 10: Inspection
An inspector conducts a thorough inspection of the property. He may give recommendations on items that need to be repaired or replaced. Again, you may cancel your offer if the home requires too much work.
Final stage: Closing process
The attorney, title agent, or real estate agent will advise the necessary documents for the final purchase process and what needs to be signed.
Hire a Property Manager
Once you own the property, an effective property manager can save you time, money and headaches.