How to Buy Rental Property in 6 Simple Steps
Learn how to buy rental property today. Our beginner's guide will show you all the proper steps to buying your first rental property.
1. Define Your Goals for Buying Rental Properties
Buying your first rental property can be daunting. However it is actually quite simple once you realize that it can be broken down into 3 major parts: Choosing the right rental property, applying for a mortgage loan and closing the deal with the seller.
Are you investing for the long run so that you can enjoy stable passive income during your retirement years? Or perhaps you are a short term property speculator who is just using rent income to cover your mortgage payments while waiting for property values to rise.
Your investment goals will give you a clear direction on how to buy rental property and influence your choice of rental property, location and budget. This step may seem trivial but it comes to rental property investing, failing to plan means planning to fail.
2. Decide on the Type of Rental Property to Invest
There are many choices for residential rental properties - apartments, single family home, multiplexes and even entire buildings. The size of your ideal rental property depends heavily on your experience and budget.
If you are buying your first rental property, it's recommended that you choose something smaller like a single family home. Not only is a smaller rental property more manageable, any landlord mistakes that you make are going to be less costly.
If you do decide to buy a larger rental property with multiple rental units, then you can consider becoming a resident landlord (meaning that you live in same building as your tenants).
There are privileges to becoming a resident landlord: Mortgage lenders tend to favor resident landlords and grant them loans with lower interest rates or less down payment. You also have more legal rights which will come in handy when dealing with any problem tenants later on.
3. Choose the Location of Your Rental Property
When it comes to rental properties, having the right location is extremely important - It not only determines the future value of your rental property but also affects your supply of tenants and rental income - Click here for our complete guide on how to spot profitable rental properties.
When you are choosing the location of your rental property, watch out for both boom and bust signs in the neighborhood. A rental property located in an developing area with rapid population growth is going to have a brighter future than a rental home which is sitting in a decaying slum zone.
Most importantly, you should look for an area where there will be a high demand for rental property in the long run. This includes places near colleges, commercial and industrial zones where there is a high concentration of foreign students and workers.
NEXT: How to Buy Rental Property Continued - Step 4 to 6
