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Investing in Rental Properties 101

Updated on November 23, 2011

In today's market, those who have money to spend can buy some nice property either to flip and resale or rent. Whether flipping them or renting them out for income are very similar. Buying distressed homes can be either easy or a major headache depending on their condition. Those who can afford to buy investment property are generally well off, this is not something to do with a 50K year job. Usually contractors are the most likely to benefit as they have crews ready to go into a damaged home, make repairs and either sell or rent.

If you are renting, don't always assume you will be renting it out every month of the year, consider have a property management company handle the renter issues and the application process. They usually charge not more than 6% of the rent per month and have handymen that work for discount to cover repairs. Try to buy property that is within 1-2 hours of where you live so you can check on the property and plants on it. Renters will seldom ever take care of the vegetation around the house or condo even if there is a clause in the contract they sign. Either plan on doing it yourself or hire a landscaper to maintain. The rent should cover any association fees due monthly. Make sure you know the rental potential before you buy and don't always think you can refinance- banks are harder on investors. If you are buying a how or condo with build in appliances, consider their age because stoves and fridges do burn out after 15-20 yrs of use. Figure out how much income the rental will generate and make a deal only if you can collect 1.25% of the purchase price each year in rental income. Examine the rental market in your area to determine rates. Potential buyers of income property should be prepared for unexpected costs such as maintenance costs, taxes, insurance, repairs in addition to the closing costs which are always between 3-6% of the purchase price. One should set aside $2000 a year for insurance, taxes and any association fees. Other rental property fees include legal fees, appliances, pest.

Finding a tenant may take longer than expected so plan on looking for three months and set aside monthly expenses to cover it. Then, expect tenants to move suddenly even if you have a lease. It can take six months to find a tenant with good credit scores. After a tenant moves, plan on expenses from damage, painting, carpet replacement, missing things and so on.

If you plan on fixing it up and selling, know your costs before you buy. Have the house inspected and determine the costs to make it ready. Talk to RE agents about the market where the property is located to determine fast selling prices.

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    • perrya profile imageAUTHOR

      perrya 

      6 years ago

      thanks!

    • nicregi profile image

      Reginald Chan 

      6 years ago from Malaysia

      Very good information. Good insight on the matter and thank you for sharing. Voted interesting. However you might want to consider adding photo capsules etc to make it more interesting and eye catching.

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