Thinking of purchasing a rental property for extra income? A rental property can be a great source of income whether you have a basement in your own home to rent out, a guest house, or a stand-alone house in the neighborhood or the other side of town.
It can be a nest egg for your retirement or property to leave to your family when you’re gone. But many people don’t know the first thing about how to start a rental property. We’ve got you covered.
In this post, you’ll learn seven tips about getting started. Here’s what you need to know.
Different Types of Rental Properties
There are many kinds of rental properties when you’re looking to invest. Here are some options, depending on your budget.
- A space in your own home like a mother-in-law apartment
- Single-family home
The list above includes residential property options. However, you can also invest in commercial rental properties.
These include office space, multi-family apartment complexes, or retail property. Once you choose a property, here’s what you need to do to get started.
- Determine Where You Want to Buy
Are you looking for a house with extra space where you’ll be living in a rental with your tenant? Then you’ll most likely need to find a large enough home with a basement or guest house on the property.
Many landlords want to purchase a property nearby. This makes it easy to tend to any problems on the property without having to drive a long distance.
If you don’t want to buy in your own neighborhood, look for an up-and-coming neighborhood to make the best profit down the road.
- How to Find Rental Properties for Sale
When you’ve narrowed down the location where you want to buy, it’s time to start looking for properties. But how do you find them?
Work With a Realtor
Most people work with a realtor. Make sure your realtor is familiar with the neighborhood. They may even be aware of properties for sale.
Knowing information about the area such as the high crime areas is important. A realtor who knows the zip codes you’re interested in will be able to advise you best.
You can check realtor websites such as Zillow and Realtor.com. But know that the information on those sites may not be up-to-date.
Two other options you have: wholesalers and turnkey property companies. Wholesalers can help investors find properties below market rates. They’re experts at negotiation.
Turnkey Property Companies
Looking for a property where you don’t have to lift a finger? A turnkey property provides a good investment option for someone who doesn’t want to take on any remodeling projects.
You can find businesses that solely focus on selling turnkey real estate. Often, they already have tenants living there and provide a management company to handle the details.
These can be more expensive. You’ll need to run the numbers to decide if a turnkey property is right for you.
- Determining What You’ll Pay for Expenses
When buying a property, determine what you’ll pay for expenses. Here are typical costs associated with owning rental property:
- Property taxes
- Home owner’s association (HOA) fees
- Property insurance
- Maintenance and lawn care
- Trash and recycling
- Water and sewer
- Property management
- Remodeling costs
- Marketing and advertising
Calculate these costs. Then determine the rent you’d need to charge to cover your losses.
- Can I Pay Cash or Do I Need Financing?
If you can’t afford to pay cash for the entire property, you’ll need to look into financing. Most banks require 20% down, but there are exceptions. One is for first-time buyers.
If you’re financing, it may be worth it to get your credit in order to get a better interest rate. If your credit is good, you’re ready to go. Start the process as soon as you can. And know that there could be delays.
- Decide If You Want to Hire a Property Manager
You can manage your property on your own or hire a property manager. If you know someone who is experienced in management, you can give the person the job.
Another option is to hire a property management company. They’ll take care of as much as you want them to from marketing the property to handling legal responsibilities. Here’s what they do:
- Screening prospective tenants
- Do background checks
- Draw up leases
- Handle maintenance requests
- Collect rent
- Send notices to tenants
- Inspect vacated properties
- Much more
- Handle tenant and building emergencies
If you want to save money, you can handle these tasks yourself. But keep in mind, they can be time-consuming.
- Finding a Quality Tenant
After the closing, it’s time to find a tenant. If you’ve decided not to hire a manager, you can advertise on sites like Apartment.com, Zillow or another rental site.
To attract more tenants, take some good photos of the property. You want it to look its best. You might want to find someone with good photography skills or to hire a photographer.
Make sure the property’s curb appeal looks pristine, the interior is clean, open the windows to bring in natural light.
When choosing tenants, make sure you do a thorough background check. The last thing you want: to rent your property with an eviction history.
- Writing Up the Lease
A lease outlines the legal requirements between landlords and tenants. Here’s what should go on the lease:
- Price of unit and deposit made and balance due upon move-in date
- Rent due date and method such as an online portal or check
- Pet allowances, restrictions and deposits
- Security deposit information
- Appliances and utilities included and excluded from rent
- Parking information
- Any other rules or policies
You can find rental leases online. If you’re working with a property manager, they can take care of the lease.
7 Amazing Tips on How to Start a Rental Property Reviewed
Now you know seven great on how to start a rental property. Rental properties can be a sound investment. And bring in cash flow for you and your family for years to come.
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