Real estate has been one of the most solid investments you can make for decades. And, rental properties are a great way to get started in the market.
If you’re considering buying rental properties for sale, you should know a few things to ensure you are making wise decisions. Here’s a comprehensive guide to help you as a new investor.
You might be thinking, “Why should I buy a rental property to start in real estate when there are other types of assets that I can invest in?” Well, there are actually a few advantages to rental properties over other types of investments.
Buying rental properties can provide you with a steady stream of income without the demanding responsibilities that come with owning and managing other types of commercial properties, such as office buildings and retail spaces. And, unlike stocks and other investments that fluctuate wildly, rental properties tend to provide a more stable return on investment (ROI). That’s because people will always need a place to live, no matter what the economic conditions are.
Of course, there will be times when your property gets vacant. But with proper management, you can minimize those times and maximize your rental income. Over the long term, rental properties can provide you with a consistent source of passive income.
These types of investment properties also tend to appreciate in value over the long term. That’s because, as the population grows and the demand for housing increases, the value of your rental property will go up. This can give you a nice nest egg to cash in on when you retire or sell the property down the road.
While there’s no guarantee that your property will appreciate in value, it’s still a good possibility, especially if you choose wisely and invest in an up-and-coming neighborhood.
What investors love about rental properties are the tax advantages they offer. When you own a rental property, you can deduct various expenses from your taxes, including mortgage interest, depreciation, operating expenses, cost of repairs, and more. These expenses can really add up and offset your rental income.
To ensure you’re taking advantage of all the tax breaks available as a rental property owner, you should always consult with a tax advisor.
Another advantage of buying a rental for sale is that you can use leverage, or borrowed money, to purchase them. This means you can control a property that is worth much more than the amount of money you have invested.
Let’s say you wanted to buy a rental property for $200,000. You could put down 20% and borrow the other 80%, which would give you $160,000 in equity. So, even though you only invested $40,000 of your own money, you now have an ownership stake in a $200,000 property.
This is what’s known as leveraging your money.
Rental properties are tangible assets. This means you can see and touch your investment, unlike stocks or other investments that are intangible. And, because rental properties are physical assets, they can’t just disappear overnight as some investments can.
When it comes to rental properties, you will have a variety of options to choose from. This means that you will surely find something that suits your investment goals.
For example, if you’re looking for a property that will provide you with a steady stream of income, you might want to consider an apartment complex. Or, if you’re looking for one that has a high potential to appreciate in value, you might want to consider a single-family home in a developing neighborhood. And, if you are the type of person who enjoys meeting new people, you can opt for a vacation rental.
Another crucial factor to consider when investing in rental properties is the landlord-friendliness of the state where you plan to invest. Landlord-friendly states often have streamlined eviction processes, clear and concise lease agreements, low property taxes, and minimal regulations on rent increases. Investing in such states can significantly ease your business operations and maximize your return on investment. Therefore, understanding the landlord-friendliness of a state can be a game-changer in your property investment journey.
The bottom line is that there are all sorts of rental properties for sale, so you’ll be sure to find one that’s right for you.
Of course, there are some risks to rental properties as well. But overall, they offer a great opportunity for new investors to make good money and build wealth over time.
While buying rental properties offers great benefits, you should still do your due diligence to ensure you are investing in the right one. Here is a checklist of factors that you can use when evaluating your options.
- Condition of the Property
- Cap Rate
- Local Rental Laws and Regulations
You’ll want to look for an investment property for sale that is located in an area with strong growth, as this will help ensure there will always be a demand for rental units. Is the population growing? Are there many new businesses moving into the area? Is there a lot of new construction? All of these factors can indicate that an area is ripe for rental growth.
Apart from growth, you should also check the safety of the areas where you’ll be purchasing rental properties. Obviously, you’ll want to avoid areas with high crime rates as this will make it harder to find tenants.
It’s important to remember that, as a future landlord, you will be responsible for making any necessary repairs and improvements to the property you are buying. So, if a property is in need of major repairs, it might not be the best investment. On the other hand, if you find a property that is already in good condition, it could save you a lot of money in the long run.
However, this doesn’t mean that you should only consider properties that are in perfect condition. In fact, some of the best rental properties to buy are those that just need a little bit of work. By making some simple cosmetic repairs and improvements, you can add value to the property and make it more appealing to potential tenants. Just make sure you will have enough cash flow to cover any immediate repairs that need to be made, which leads us to the next factor on our list.
The capitalization rate (cap rate) is a key metric to consider when evaluating rental properties for sale. It is simply the ratio of the property’s annual net operating income (NOI) to its purchase price.
For example, you’re considering an investment property that has an NOI of $20,000 and is being offered for sale at $200,000. This would give the property a cap rate of $20,000/$200,000 = 0.10 or 10%.
In general, you’ll want to look for a rental with a higher cap rate as this indicates a higher return on your investment. However, you should also avoid properties with very high cap rates as they are known to be riskier investments.
As a rule of thumb, the ideal cap rate for a rental property falls between 4% and 12%. However, this still depends on your risk tolerance and the returns that you expect from the property.
Before you purchase a rental property, you’ll want to familiarize yourself with the local rental laws and regulations. These laws can vary greatly from one city or state to another, so it’s important that you understand what is required of landlords in your area of interest.
For example, some cities have laws that require landlords to provide their tenants with a certain amount of notice before they enter the rental unit. Others might have laws that dictate how much rent can be increased each year. And, if you buy a property that you plan to use as a short-term vacation rental, there might be a minimum or maximum rental period that you are required to adhere to.
By understanding the local rental laws and regulations, you can avoid any potential legal problems down the road.
Buying Investment Properties: The Process
Now that you already have a good idea of which properties to invest in, it is time to make your purchase. Here are the steps to take.
Before anything else, you should determine how much you’ll need to finance the purchase of your rental property. If you don’t have the cash on hand, you’ll need to get a loan from a bank or other financial institution.
There are several types of loans that you can use to finance an investment property, with each having its own set of pros and cons. The type of loan that is best for you will also depend on several factors, such as your credit score, the down payment that you’re able to make, and the rental income that the property is expected to generate.
Once you have your financing in order, it’s time to start looking for properties with the help of a real estate agent.
A dedicated team of agents, such as Homes by Ardor, can help you find rental properties that fit your investment criteria. They have the in-depth market knowledge and access to MLS listings that are not available to the public. All you need to do is tell them your price range and the type of properties that you are looking for, and they will do the legwork for you.
At this point, your agent should already have a few potential properties for you to choose from. Once you have a shortlist, it’s time to start viewing the properties.
When viewing a rental income property for sale, it’s important to look beyond the cosmetic features, such as paint color and flooring. Instead, focus on the property’s potential rental income and overall ROI. Pay attention to things like the condition of the appliances, the size of the bedrooms, and whether there are any major repairs that need to be made.
Once you’ve found a rental property that you want to purchase, it’s time to make an offer. Your real estate agent will help you navigate this process and ensure that your interests are protected. They will also help you negotiate a fair price for the property.
Once the seller accepts your offer, congratulations! You’re now the proud owner of a rental property.
There are many benefits to owning a rental property. However, it’s important that you do your research and invest in the right property to maximize your chances of success. With the help of a good real estate agent, you should be able to find one that meets your investment goals.
Now that you know how to buy rental properties for sale, it’s time to get started on your investment journey. If you’re looking for more useful information about real estate, please browse our site. Good luck!