One of the keys to being a successful landlord is finding profitable rental properties. There are many different steps to take in your search for the perfect rental property. Here are a few to get you started on the path to success.
1. Find the right broker. A reputable real estate agent or broker can mean the difference between a successful hunt for a rental property and coming up empty. He or she should know the neighborhood well, and advise you on which properties are best suited to your needs. This is especially important if you are looking for properties out of your current town or area. His or her knowledge of the area can be invaluable.
2. Get your finances in order. Go through your finances thoroughly, and make sure they are all in order. If you plan on taking out a mortgage to finance your property purchase, make sure your credit report does not contain any inaccuracies. Get copies of your credit reports from the three major credit bureaus, and question anything that appears inaccurate. This can help your chances of getting approved for financing, and qualifying for favorable interest rates. Also, come up with several worst-case scenarios before finalizing your decision to buy a property. If you can't find enough renters to fill the property, you'll still have to make your mortgage payments.
3. Do not overpay. Your purchase needs to allow for a sufficient profit margin, even if you don't have full occupancy on your rental property. Set a maximum amount that you can afford to spend, leaving you with some cushion in case you have vacancies.
4. Do not get stuck with a fixer-upper. While finding a cheap fixer-upper may seem like a bargain, you may get stuck in a money pit very quickly. If the repairs are major and would require a lot of time and effort, you may be better off paying a little more for a property that's in better condition.
5. Get it inspected. Before purchasing any rental property, have it thoroughly inspected. Make sure that the electrical wiring is up to code, that the paint is not lead-based, and that the environment is safe for tenants. Inspections can dig up hidden problems that could end up costing thousands of dollars. Although you may be required to pay for the inspection yourself, it can save you lots of money when compared with paying for unexpected repairs.
6. Research the neighborhood. After you have found the right property, take some time to research the neighborhood. Is it safe? Do you need to provide additional security? Are there plans in the works for construction that might lower the property's value? You need to know what the neighborhood is like now, and what it will be like in the future.
7. Know the real estate market. If you're not familiar with the area, or if you're not working with an agent or broker, you'll need to research the current real estate market. Low prices in the housing market typically mean that the rents are also low. High housing costs mean that you'll be able to charge more because the area is in demand.
8. Network. Ask your peers, and people in the area in which you're looking for property, if they know of anything that's available or may become available. Often, business owners and other landlords are on top of the turnover situation, and offering small finders fees as a reward can inspire them to think of you when they hear about a property that may be up for sale.
9. Do not stray too far in your search. While you may not be able to find appropriate rental properties near your current location, do not settle for something that fails to meet your specifications. If you end up with a property in another state or far away from your home, you'll have to either spend money on travel expenses or hire a property manager.
10. Do a Competitive Analysis. Ask your broker to provide an analysis of comparable properties sold in the last two years, listing rental income, sales price, number of units, square footage, and other relevant factors.