When it comes to real estate property investments, rental homes are likely the best choice for first-time property investors. As perhaps the most widely available form of housing, a single family rental home is most coveted by buyers and renters. As such, the investment is easier to finance, refinance, manage and liquidate, when compared with larger, multi-family property investments. But rental home investment properties require up-front cash, financial feeding, management and maintenance especially during the early years.
Financing: Because the rental home investment zaps rental income, you can't use all of your rental home income to qualify for investment property mortgages. The exact amount of your rental home income you can use to qualify depends on the lender, the property, your down payment, other financial obligations, outside income and other loan qualifying factors. From the start, a rental home property will cost you more to finance than an owner-occupied home, but you can cut costs by purchasing a condo instead of a single-family detached home, a fixer-upper or a foreclosure property. Also, consider financing through the seller, borrowing against your other investments or retirement funds, or other creative financing tools. Don't expect to enjoy either income or appreciation on your rental home; however, until after you've held the rental home property for at least five to seven years.
Rental home property with potential: To maximize your return on your rental home, shop for a rental home investment property much in the way you'd buy your own home. Consider fixer-uppers that don't need major upgrades. Buy the cheapest rental home in the best block or buy into the cheapest neighborhood in the best community. Buy in areas where demand for a rental home will eventually exceed supply. And if possible, buy in a down market to later enjoy the equity-building benefits of an upturn. Because you'll have to keep tabs on your rental home property, it is wise to buy it within easy access of your own home.
Investment management: Unless you have the knack and the time to manage tenants and your rental home property, your costs will include hiring a property manager. Along with advertising vacancies, screening tenants and looking after maintenance, a rental home property manager can also help you project how much you can charge for rent, make sure you perform required disclosures and fill you in on renters' and landlords' rights.
Know the rental home market. If you are not familiar with the rental home market in your area or if you are not working with a broker, you will need to research the current rental home market. Low prices in the rental home housing market can mean that the amount of rents is also low. High rental home housing costs generally mean that you will be able to find more renters. This demand will determine the amount of rent that you can charge.
Network with your peers and real estate professionals. If you do not find the right rental home property immediately, meet with local brokers and let them know what you need. Ask them to be on the lookout for rental home properties for you and assist you in your search. While you may not be able to find appropriate rental home properties near your current location, do not settle for something that does not meet your specifications. If you end up with a rental home property in another state or far away from your home, you will either have to spend money on travel expenses or hire a property manager.
Do a Competitive Analysis. Scour the multiple listing service to evaluate current rental home properties on the market. And ask your broker to provide an analysis of comparable rental home properties sold in the last two years, with rental income, sales price, number of unites, square footage, and other relevant factors.
