Where Should You Purchase Your Rental Property?
Once you’ve met with a lender or mortgage broker and determined how much rental property you can afford, it’s time to narrow down your decision. By getting online and searching for neighborhoods that have consistently been rising in property value, you can rule out areas that are underperforming. Then, help take the guesswork out of your purchase and dive deep into the math and formulas that industry professionals use to help predict the rate of return on your investment.
Depending on your situation, it may make sense to buy a duplex and move in to one of the units. Owner-occupying can be a great intro to investment property ownership because your tenant will be splitting the mortgage with you. Lenders look at this type of purchase as a hybrid, where you’re both owner and landlord. However, you’ll also be responsible for repairs and upgrades for two properties, and those costs can be substantial. If you decide on a fixer-upper, keep in mind that you’ll need cash on hand to rehab both living spaces, perhaps before taking occupancy.
Weighing a Single Family Purchase Against a Multi-family Buy
When determining a type of property to invest in, it pays to explore your financial goals first because different types of housing have unique payoff profiles. Are you seeking a return on investment (ROI) within five years? Single family homes are great rental investments when a short-term ROI is the goal. But what if you’re in for the long haul? Multi-family purchases may need a longer period of time to break-even, but they often see a greater ROI. Although single family homes may attract a more reliable tenant, a vacancy equates to a total halt of rental income. The vacancy risks of a multi-family unit are reduced because it’s rare that all units are vacant at the same time.
Finding a Qualified Tenant
After you close the deal, it’s time to seek out prospective tenants that will treat your new place like their own. Work with a real estate attorney to customize a lease that matches your property’s design. Consider variables like your tenants owning pets. Will you require a larger security deposit? If so, what are the terms? Will you require your tenant to give you notice of their intention to move out sixty days in advance, or ninety? What are the local and state laws governing security deposits and tenant notice that can directly impact these policies? You’ll need to verify compliance with the state and local codes here or risk legal actions taken against your business.