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How to Buy a Profitable Rental Property?

Updated on October 21, 2011

Buying a Rental House

If you are intending to buy a second home, then be ready to do a lot of hard work. For a first-time investor, the entire process of buying a rental property can be quite intimidating and nerve-racking. Apart from ensuring that your investment yields desirable results, you also have to take care of the needs of your prospective tenants. Here are few invaluable tips that will help you to buy profitable rental property with ease.

Know your needs- A rental property can be used in many ways. For instance, you can let out your house to families and students, convert it into a vacation home, or rent it out as commercial office space. The first thing that you need to do is to enlist all your needs and desires. Thereafter, find out how much money you have to invest in real estate. For buying a rental house, you can either use your savings or take a home mortgage. In the case of the latter, you would need to attach a collateral, which can be your first home. Once you have chalked out you needs and budgetary limits, it becomes relatively easier to find an appropriate rental property.

Travel around the market- Real estate markets typically vary with respect to factors like property type, price, taxes, and so forth. Thus, if you live in the New York City and intend to make an investment in Utah real estate, you would have to study the Utah property marketplace carefully to acquire in-depth knowledge about it. If you aren’t familiar with the market trends, you won’t be able to make a profitable investment. Over the internet, you can find loads of information. You can also get in touch with the real estate agents of the area and explore the prevalent market trends.

Look around- If you are intending to buy your second home in the same city where you first home is located then it is advisable to stay away from real estate agents, especially during the initial stages. There are two reasons for this, firstly, you know the area inside out, and secondly, the agent will provide you only a limited number of options, and thereafter, pressurize you to select any one of them. Your requirements and budgetary constraints will be totally ignored. On the contrary, if you start the search on your own, you will get ample amount of time to look around the market in an unbiased manner. After you have shortlisted a few houses, you can bring the agent into picture to help you carry out all the formalities related to buying a rental property.

Important aspects of a good rental property-

  • Neighborhood- It has a marked influence on two important aspects of the rental property, one, the kind of tenants it attracts, and two, the rate of vacancy. For instance, if your rental home is located near a university, then your tenants will be primarily students, and at the end of each academic session, you would have to find new tenants.
  • Nearby amenities-If you intend to let out your house to a family, then you should ensure that basic amenities like school, daycare center, restaurant, multiplex, shopping complex, and hospital are nearby. If students are your prospective tenants, then facilities as library, public transport, pubs, clubs, gym, etc. should not be far away from the house. Likewise, for a vacation home, the tourist attractions should be nearby.
  • Crime rate-Nobody wants to live beside a criminal. Hence, crime rate is a significant issue that shouldn’t be overlooked. Through the internet and local newspapers, you can get a lot of information about the crime rate of a particular area. If you wish to buy a rental home in a city that is different from your place of residence, do take out time to visit the place and talk to the police to get the accurate crime statistics.

Rental rates- Some inevitable expenses associated with rental properties are insurance premium, property tax, mortgage, and other repair and maintenance overheads. Hence, the rent that you get should cover all these expenses as well as provide you a second source of income. Buy the property in that area where the rental rates are not only high, but they will continue to rise in the future too. Utah real estate market is one such place where rental rates are bound to increase exponentially in the coming years.

Local laws and rules- Prior to purchasing a rental property in a specific area, check out the local rules and regulations. There are some municipalities that have stringent laws to restrict rentals. Also, there are a few homeowner associations that impose restrictions on the number of times a house can be let out in a year. Be wary of such laws, as they can easily hamper the profitability of your rental property.


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