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13 Tips You Must Follow When Buying A Rental Property

Should You Buy A Rental Property?

As a form of investment, buying a rental property is generally considered to be a very good one. One that requires due diligence, on your part, to ensure you get the best return on your investment. Imagine this – After you make the down payment and pay all closing costs, the renter pays off your mortgage. How good is that? You should buy a rental property if you want to diversify your holdings beyond stocks and bonds. Remember, choosing the right property, maintaining it, dealing with tenants—all that takes work. Investing in a rental property is not as easy as investing in stocks. In this article, I’m going to give you some important tips to follow when buying a rental property for single family dwellings. These are the steps every budding property investor should take to pick a good cash flowing rental property.

buying a rental property

How To Find Good Rental Property Deals

Looking to purchase and profit from a residential rental property? From the first decision to get into the landlord biz to actually buying a building, the idea may be daunting for the first-time investor. Real estate is a tough business so you need careful planning before putting down your money in rental properties. Finding good rental property deals can be a difficult task to accomplish. A bad rental property deal will make you no profit or even worse, it can lead to a financial loss. Therefore, as naive real estate investor, you should opt for buying off-market rental properties from turnkey real estate companies.

How To Determine A Good Rental Property

A rental property should be turnkey and rent ready. A good rental property is the one which is fully refurbished or a new construction residential property. The property must be in growth markets and must produce a positive cash-flow. The property must have a good appreciation potential. Norada Real Estate Investments helps take the guesswork out of real estate investing. By researching top real estate growth markets and structuring complete turnkey real estate investments, they help you succeed by minimizing risk and maximizing profitability. Their rental properties for sale are at or below fair market value – which means there is a potential of more returns on your investment.

Things To Know Before Investing In Rental Property

For beginners looking to invest in a rental property, it is frequently placed in the category of income sans work. However, it’s not like that at all. In spite of the fact that it actually qualifies as passive income, that doesn’t mean you’re not going to buckle down. Actually, in the event that you choose to manage the property yourself, you must know that unlike stocks it is not a hands-off management. You will be required to do a lot of work for managing the rental property as wells as your tenants.  Making money in real estate is not necessarily as easy or simple as you’ve been told. Even if you hire property managers to help you manage your rental properties, you still have to manage them. Buying rental property is not for everyone. It should be an investment option you consider only once you’ve achieved a certain level of financial independence. If you do it right, you can put yourself on the road to success with cash regularly flowing into your bank account. For more information on things to know before investing in a rental property, click on the link.

13 Tips You Must Follow When Buying Your First Rental Property

When seeking to buy a rental property, it’s important that you tread cautiously. This will help you to avoid common risks in rental property investing. Investment real estate, although a highly profitable business, it is also equally a very tricky one. There’s a lot to be wary of including con agents and dealers, substandard properties, and exorbitant charges alongside others. It’s just important that you exercise caution before buying anything. Here are the 13 tips that you must follow when buying a rental property for a passive income generation.

1. Choose Best Location Before Buying A Rental Property

As you already know, “LocationLocationLocation” still rules and remains the most important factor for profitability in any form of real estate investment whether it is “fix and flip” or a rental property investing. Before you get your heart set on a specific location, bring the property’s location into serious consideration.

  • Find out what is crime rate in that location.
  • Are there schools close by and how are they rated?
  • How far are the amenities like parks, supermarkets, transport hubs and restaurants?
  • How good is the rental property market of that location? What are the comparable rents and purchase prices?
  • How is the economic development of the area?
  • How the locality is expected to evolve over the investment period? If the area develops, the rent price will increase and so will your income and vice-versa.

2. Use Leverage To Purchase Rental Property

As important as location, location, location is to buying, so is leverage, leverage, leverage. *David Reiss, a Professor of Law at Brooklyn Law School believes understanding the mortgage market helps keep costs low and reduces market cash flow uncertainty. Having a mortgage can also free up cash for repairs if needed for your potential investment. He goes on to say consulting a professional can save you time and money. Caveat Emptor.

When going for leverage to finance rental properties, , no lender will lend you money with no money down, and no seller will carry a note without you putting some money down even if it’s a promise to do money in the future. There is no such thing as no money down in any type of real estate investment because the money is going to come from somewhere. In regards to buying properties with no money down, one of the best options you can try out is that of borrowing. There are a good deal of banks, financial firms and private lenders out there who can readily loan you the amount you need to buy a rental property.

Importance of Leverage – If you do it right, you will be able to add more and more rental properties in your investment portfolio. If you wanted to buy $100,000 worth of stocks, you need to invest $100,000 out of your savings. But, if you want to buy a rental property that costs $100,000, you can use other people’s money to make this purchase. A bank or other lender will generally give you 80% of the purchase price. You just need to make a down payment of remaining 20%. In this way you can save 80% of your savings through leverage.

3. Choose Single Family Rental Homes

New real estate investors should start with single family rental homes. Why? Upkeep is easier as you only deal with a single tenant. Should something break and needs repair you only have to fix the problem once. Wear and tear on your investment is also reduced with single family tenants. We recommend 8 hottest real estate markets 2018 for investors looking to build their wealth through portfolio of single family rental properties. Following the housing market decline in 2007, single family real estate investing became favorable options for investors, saving in construction or refurbishment prices. The quick turnaround for an owner to rent out their property means cash flow is almost immediate. Single family rental homes have grown up to 30% within the last three years. Almost all the housing demand in the US in recent years has been filled by single family rental units.

4. Tenant Screening

Screen your tenants, says Larry Friedman, Co-Founder & Principal S.D.F Capitol. A background check, court records, credit rating, landlord tenant disputes, all questions you must have answered. Doing so ensures you have a qualified tenant. Failure to do so can cause a multitude of expensive problems and personal stress to name just a few. Landlords need to thoroughly vet their tenants to be on the safe side. Finding and screening tenants, doing paperwork and ensuring low vacancy rates is not an easy job. This leads to losses especially if such a property was your sole investment. The losses add up more if you have bought the rental property through mortgage.

5. Short Term Rental Restrictions

Welcome to the world of VRBO and Airbnb. These short-term rental companies can turn buying a rental property into a nightmare. Some cities have legislated short term restrictions on rentals. Roh Habibi, the Founder & Principal of TheHabibi Group suggests potential investors need to be aware of HOA and condo laws that may apply to your purchase. Before buying, you need to be sure it can be used as a short-term rental.

6. Do the Math

Why over complicate your life? Ask yourself this, will the rental payment cover your monthly mortgage cost? Maybe even make you a few dollars. Experts believe that inexperienced investors should let the numbers speak for themselves. If you meet your mortgage payments, you probably have a good deal. Over analyzing when buying a rental property is a complication you don’t need.

7. What is a Good Rate of Return on Rental Property

Owning rental properties can provide investors with steady rental income or capital gains when sold for a lump sum profit. Profit is made on an investment as a percentage of the cost of the investment. A cap rate of 7% or north of that number is considered as very good for a profitable rental property. rental property investment. Generally, the average rate of return on investment is anything above 15%.

When calculating the rate of return on a rental property using the cap rate calculation, many real estate experts also agree that a good ROI is usually around 10%, and a great one is 12% or more. Amazing deals can be found by wise investors. To do so involves shopping the areas for what houses are selling for. Areas that are expected to transition to a more gentrified neighborhood should be prime investment targets.

8. Consulting Real Estate Finance Professionals

When buying a rental property, it’s important to deal with recognized professionals. Opportunity cost and leverage are need to knows, in the financing world. These experts will help you understand the cost benefits and potential opportunity costs when using all cash. They will advise you on the actual revolving cost and true margins on the financial side of things.

9. You Need a Written Lease Agreement

When renting your new property, having a proper lease is very important. With one in place you can eliminate potential misunderstandings between you and the tenant. Some of these include rental payment and due date, termination fees, are pets allowed, insurance, ensuring the living space is clean and even the heating temperature setting in winter.

10. Outdoor Space is a Bonus

With an eye towards renting to good tenants, consider buying a rental property with outdoor space. Most renters will enjoy having family and friends over for backyard BBQ’s, relaxing, and just spending time outdoors. If the area is private that’s a big plus to consider. Renters can then add personal touches to make the space an outdoor oasis to enjoy.

11. Consider Buying a Rental Property Near Apartment Buildings

This is a tip many investors might not consider but should. As there is a proven area demand with surrounding apartments, move-up tenants might like a home instead. Jeff Rohde, the Founder of J Scott-Digital believes this will give you great savings in advertising costs.Lobby signs and flyers could be your best marketing tool.

12. Balance Your Risk

People will still need places to live even in a flat economic cycle. Your rental can be a steady income generator during a downturn. Choosing the correct rental property helps balance risk. Areas with a high demand for rentals will continue to generate income even when the economy is in a downturn.

13. Buy What You’re Familiar With

Like all your major investments in life, buy what you know. When buying a rental property, use your life experience to help you gain a competitive edge. Experts suggest looking for investment properties near your college campus. Another life experience to mine would be retired military near a military base. Properties near hospitals can provide rental opportunities for nurses. Your real life experiences can make you a good investor.

Buying A Rental Property: Investor’s Verdict

The American Dream used to include real estate investing. If chosen carefully, real estate investing is likely to give steady returns in the long run. Buying a rental property, like most things in life, once you know the rules of the road it’s not as difficult as you first imagine. Fortunately, experienced real estate professionals or advisers are either a referral away or after some sleuthing on your own, added to your preferred supplier list. Go for reputed turnkey real estate companies and buy rent-ready properties. Then, hire a good property management company who would find qualified tenants as well manage the property on your behalf. When shopping for expertise remember, there are no stupid questions. But lots of stupid answers. Again, Caveat Emptor still applies when buying a property.


*The information contained in this article was pulled from third party sites mentioned under references. Although the information is believed to be reliable, Norada Real Estate Investments makes no representations, warranties, or guarantees, either express or implied, as to whether the information presented is accurate, reliable, or current. All information presented should be independently verified.

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