Buying a single-family home to turn into a rental property is a good way to acquire an investment and give you a passive income. As you search for a home to become a rental property, there are several considerations you need to keep in mind to help you buy a property that will be a good investment and create positive cash flow for you over the years. Here are three tips to keep in mind as you work with your real estate agent to look for a rental property to buy:
Determine the Market Rent
One step in choosing a property that will create a positive cash flow from the rent after all the expenses are paid for is to figure out what the market rental rate is for that area. This will require you to do a little research in the area you are shopping in to find out what similar homes in the area are currently renting for. There are several ways you can complete this research.
Search online for property management companies or in local classifieds to see what similar homes in the neighborhood are renting for. Make sure to consider such items as the age of the home, square feet, and the number of bedrooms and bathrooms to find properties that are similar to the one you are considering purchasing. Also look at whether the home is situated on a busy street, or the surrounding neighborhood, as these conditions can affect the rent price. If you are working with a realtor, they may be able to provide some invaluable insight into rental pricing for the market.
Consider the Home's Price
It is also important to consider the purchase price of the home to determine whether a single-family home will be a good rental property investment. When you secure the financing to buy the property, you want to be able to cover the mortgage, property taxes, insurance, and other costs that will come along with owning a rental property. Ultimately, you want to have some rent income left over after all the expenses have been paid.
You can complete a cash flow analysis on the property by listing all the property's monthly expenses and subtracting this from the amount of rent you can collect from your tenants living in the property. If you decide to hire a property management company to manage your rental for you, be sure to include this monthly expense in your cash flow analysis.
Look for a Rentable Property
Also, remember to look for properties that would be attractive to a large number of renters, so you will be able to easily rent the property after you purchase it. For example, you may want to consider homes that have at least three bedrooms and two bathrooms and a fenced-in yard to make them more attractive to households with multiple people or children. Then, a home that has a garage can be more attractive than homes that only have a carport or street parking.
Use these tips to help you when buying a single-family home for a rental property.