What You Need To Know Before Buying A Rental Property (2024)

Investing in rental properties is a great way to build wealth. Investing in property provides you with a type of financial security that you cannot enjoy when investing in stocks alone.

However, just like with any investment, there are things that you must know, understand, and look for in a property before making the decision to purchase it for investment.

9 Things You Need To Know Before Investing In A Rental Property

  1. Average Local Rent

The first thing you should do when looking for rental properties is to familiarize yourself with the average rent in the area. Why? Because you want to know what you will be able to charge for your rental property once it is ready to start generating income.

When you are looking at properties, you will need to make sure that once your mortgage and other operating expenses are covered, you can still bring in at least $100 profit per month.

In most cases, you should be able to make more than that.

However, if the rents are low in the area and the mortgage is high, you may not find yourself generating any income. Always make sure that you know what the rents will be so that you can ensure your mortgage payments will be low enough for a profit to be made.

  1. Local Renting Laws

Understanding local rental laws is very necessary to be successful at real estate investing. For example, some areas may require that you provide monthly pest control services or pay for the property’s water/sewage/trash collection.

Your tenants will then be responsible for all the rest of their utilities. Knowing this will help you charge the right amount of rent to cover these expenses.

Some areas may have property restrictions that you may need to be aware of concerning the number of vehicles at a property, where certain things can be stored on a property, such s a boat or even the outdoor trash cans.

Knowing these laws can help prevent you from being fined by the municipality.

  1. Property Value vs. Other Properties In Your Chosen Area

Just like any property you purchase, you want to make sure that you are not overpaying for the property. Check other similar properties in the area to make sure that you are paying a fair price, especially if you are going to have to make repairs or improvements to the property.

  1. How Much It Will Cost To Make It Rental Ready

If you find an excellent deal on a rental property, you may have to make improvements to the property before you can make it available for rent. You must take this into account when you are making the purchase.

Excessive repairs may be costly and may extend the time that it takes to start bringing in a renter for the property. You must make the decision if you can float the mortgage and the repairs before being able to start generating rent.

  1. How Long Until It Will Be Rental Ready

Even if you do not have a lot of repairs to make, you may still have a delay before you can start renting the property. Repainting and refreshing the interior will help you get renters much faster.

Additionally, if you live in an area that requires any special licensing or inspections to offer a rental property, you may have to wait until the city official is available to conduct the inspections.

  1. Who Will Manage The Property

When you are looking at properties, you will have to decide if you are going to personally manage the property or if you are going to hire a property manager.

If you plan to manage the property yourself, you must make sure that you have a screening processing place for renters and a good contract to use when leading the property.

You will also have to make sure that the renter has an emergency contact number for issues concerning the property.

If you decide that you want to use a rental management company to manage your property, you will need to find out what services they offer and how much their services cost.

This will help ensure that you price the rent correctly on the unit so that you can cover the cost of these services.

  1. How To Find Great Renters

One thing that you will need to do is learn how to find qualified renters. You will need to set guidelines for tenants, but at the same time, you cannot violate housing laws.

Finding quality renters can be difficult, especially at first. This is where having a management company managing your property comes in handy. These services will qualify all your potential renters so that you have the least amount of problems.

  1. Long Term Goals For The Investment

Before making any type of real estate purchase, you will want to make sure that you have a plan in place for the investment. Are you planning to keep the property long-term, or are you planning to flip the house as soon as home values increase?

Real estate investing requires careful planning and sometimes extensive research. However, if you are willing to do these things, you can build a large real estate portfolio and generate a good income from your properties.

  1. Property Taxes

It is also important that you know the property taxes for the rental. Taxes are higher for rental properties, and every city or municipality may have different add-on taxes for rentals.

Make sure that you know what the property taxes are so that you can determine if you can generate enough income from the property to cover these expenses.

Other Things To Consider When Purchasing A Rental Property

Of course, there are many other little things that you may want to consider when you are looking at a property.

You will want to drive around the neighborhood so that you can get a feel of the area and what you can advertise to your potential renters – such as nearby schools, shopping and dining venues, and outdoor park areas.

You will also want to look at the direct neighbors of the property that you are considering. It may be harder to find a qualified renter if the next-door neighbor has 10 different vehicles scattered in their yard or the yard is full of debris.

Do You Have Any Suggestions On What To Look For In A Rental Property?

Knowledge will always be a powerful tool for you to have when you begin investing in real estate and rental properties. You can always learn something, and each new thing will help you make better investment decisions.

I encourage you to leave some of your personal tips in the comment section for others to share and enjoy. It is always beneficial to see what other successful real estate investors and landlords are doing.

Investing in real estate is a great way to build wealth and generate income.

The real estate market does not experience the same fluctuations as the stock market, and you always have physical ownership of your investment.

Property values generally increase, usually at a steady pace, so that you always will see an increase in your net worth when you own property.

The use of a property management company can reduce the stress of owning rental properties while increasing profits. If you chose to manage the property on your own, you must be prepared for a full-time commitment.

In the end, investing in real estate is a smart move for anyone.

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