Buying a home that you can turn into a rental property not only helps to build an investment asset for yourself with cash flow and capital gains, but it can provide quality housing to those living in your community. When you choose to buy a rental home, you become an investor and also a landlord, so there can be a lot of information to learn along the way. Here are some tips to help you start off so you can buy a successful rental property.
Hire a Realtor
A real estate agent can be a great resource as you look at single family homes for sale, especially one who is an investor themselves. Besides being able to search for the type of single family home you want to buy as a rental, they can help you look at a property's potential for cash flow to make sure the rental with be a good investment. For this reason, it is important to shop around for a realtor before picking one to work with.
You can talk to a local real estate broker to find out which of their agents have experience in property investment. Or you can ask other property investors and landlords who they can recommend as a good realtor to use for the buying process.
Your selected real estate agent will be able to help you complete the paperwork and contracts for making an offer on a selected property and negotiate the eventual purchase. They will also be a great resource for guiding you through the process leading up to closing on the home, including hiring the inspection and appraisal of the home.
Analyze Market Rents
As you are working with your realtor, you should determine how much single family homes rent for in the area in which you are wanting to buy. As you narrow your search down to a size and type of home, you can check with local property management companies to research what similar properties are renting for. This can help you determine how much rent you would potentially be able to charge to cover your expenses on the property.
This step in the process is important because you don't want to have a property with a mortgage payment and other expenses that exceed how much you can charge and collect in rent each month. For example, if your mortgage payment for a property is calculated to be $1500 but you can only get $1300 in rent for the property you are considering, you would need to cover $200 alone each month just to cover the mortgage payment. This does not include any water and sewer charges, maintenance costs, and property management fees.