Thinking about buying your first rental property? That’s a big step when it comes to investing. If so, then you may be wondering where to begin. Taking on investment properties isn’t a decision to be taken lightly, which is why we have some key tips for you to keep in mind as you begin your search.
Know Your Down Payment Requirements
Unlike purchasing a home for yourself, you most likely won’t have the luxury of finding an investment property loan with low down payment requirements. That 3.5% down payment you made on your FHA mortgage, for example, isn’t going to fly with multiple investment properties. Instead, be prepared to put at least 20% down for most home loans when buying a rental property.
Be Prepared for Higher Interest Rates
Keep in mind that interest rates for these types of loans also tend to be higher. Be prepared by taking the time to research current rates and calculate your returns/expenses accordingly. When it comes to qualifying for a loan, this is also a good time to check your credit report and make sure you know where you stand.
Think Before you Buy a Fixer-Upper
While a fixer-upper might seem like a great deal, it’s generally best to avoid investment properties that need major renovations—especially if this will be your first time buying a rental property. Fixer-uppers can be a lot more costly than you think, and it’s not always easy to find a contractor you can trust to make quality repairs. While this doesn’t mean you should avoid properties that need any amount of work, it’s important to understand what you can handle and how much it will cost you in both time and money.
Don’t Overlook Operating Expenses
Be sure to factor ongoing operating expenses into the cost of your first rental property. Generally, you can expect these costs to average around 50% of the rent you collect each month. This means that if you’re charging $1,500 a month in rent for your investment property, you can expect around $750 in operating expenses monthly.
Prioritize the Location When Picking a Property
Location is key when it comes to the success of your first rental property. Take time to research homes that are in popular neighborhoods that are in high demand. Look for areas with excellent schools for single-family properties, local amenities, low crime rates and other key factors that renters will likely be searching for. Ultimately, you’ll have an easier time collecting the rental rate you want and attracting good tenants when you prioritize location. Also be sure to investigate the rate of property taxes in these areas before you invest, as these will also be your responsibility.
Additional Help Buying Your First Rental Property
These are just a few of the most important tips to keep in mind when buying your first rental property. Once you’ve purchased your first rental, keep in mind that an experienced property management company can help you maximize your profits and take some stress off your shoulders as a landlord.
For more than 44 years, our team at Bancroft & Associates has been helping to maximize rental income for investors like you. Our long-term property management company is here to help with everything from securing the best tenants to maintaining your rental, collecting rent, and everything in between. Contact us today to find out more about what we can do for you.
