“Buying A House To Rent Out” written by Mike Marko
Thinking of buying a house to rent out?
You’re most likely thinking about buying a single-family rental (SFR) to rent out in order to supplement your income. If so, you’re probably trying to compare the pros and cons of the idea.
While there are many benefits to this investment, there can be quite a few drawbacks too. Fortunately, you can minimize the latter by following certain strategies.
That’s what we’ll talk about in this blog post today. That is, we’ll talk about the top strategies in buying a house to rent out.
This will help you identify the right house to invest in and prepare it for your tenants. As a result, you’ll be able to set up a profitable property rental business!
The Top Strategies in Buying a House to Rent Out
Buying a house to rent out or getting into SFR property investing can seem like heavy undertaking, especially if it’s your first time.
Every step comes with questions, like how much capital do you need to get started, what things should you search for, or which property is an appropriate investment choice for you.
To make the process less complex, this article will discuss the things you can do to make buying a house to rent out easier.
Here are the top strategies you should remember when buying a house to rent out:
1) Look for the Right Location
When you’re thinking of buying a house to rent out, the location makes a big difference in figuring out if the property is attractive to renters.
Here are examples of a good location that you can consider:
Close to Business Offices
Find a location that is near company offices or business establishments so that you can get employed renters. It is a must that you find renters who are diligent and hard-working… and who have paychecks, so they can afford rent.
That’s an important consideration when buying a house for rent. You want to be sure it’s appealing to people who will pay rent regularly and in full.
That means people with good, steady employment. And again, you’re likelier to find people of that sort near business districts.
Preferred by Potential Tenants
Give serious thought to the kind of renter you want when buying a house to rent out.
Usually, the rental property and its location will dictate the tenant type, so make sure that you’ve considered the type of tenant you want to have before you invest in any places.
After making a list of tenants’ qualifications and all other requirements in buying a house to rent out, you can look for rental properties that will be appealing to them.
A Good Neighborhood
You can also consider finding a location where it will be easy for everyone to get to shopping places, schools, churches, and other entertainment places.
That’s something a lot of renters look at nowadays, especially given the congestion in most streets.
In every case, choose a place that is secure too and where it’s obvious that homeowners take care of their houses and yards.
Furthermore, you also want to feel relaxed while you’re in the place. That should be one of the priorities to consider in buying a house to rent out.
Though you will not live there, you’ll still be there from time to time to monitor things or do repairs. Besides, if you feel relaxed while in it, chances are high that others will feel the same — which makes it attractive to renters.
2) Make Estimates for Operating Costs
You also want to make some estimates for the operating costs of each property you’re considering.
This can be a helpful strategy when buying a house to rent out because it helps you figure out which property is more cost-effective in the long run.
It’s not all about the flat sale price of a property, you see. If a property is affordable but has high operating costs when set up as a rental building (maybe because it has aged systems that require regular repair when used daily, like old plumbing), it might not be a good buy.
In calculating your operating cost when buying a house to rent out, you should talk with a few experts to help with the technicalities of the process. These experts are the following:
Accountant or Tax Advisor
There’s no point using emotion when buying or setting up a rental property. See it through the eyes of an accountant instead, and you’re likelier to make decisions that see good results.
Talk to your accountant about what expenses you should expect for the venture. Ask him to calculate the cost of starting a rental business with a particular property.
It’s also good to calculate a cushion of expenses for 6 months. It ensures that you can manage vacancies or repairs.
Be sure to figure this out in advance with your tax advisor or accountant. Do it before buying a house to rent out.
This way, you’ll know the price range you can afford for properties and how far can you go when it comes to improvements.
Real Estate Agents
Talk with real estate agents to find buying prices as well as the average rent price in the area. This will help you look for a manageable price range.
This will make it easy for you to manage your plans for buying a house to rent out when it comes to finances.
Remember that it’s always better to start with a lower–cost property. Then, when you’ve already built your financial statement and equity, that’s the time to look for more expensive real estate properties to build up your portfolio.
Talk with an insurance agent in advance to understand what coverage is necessary for buying a house to rent out. Make sure that your insurance agent has experience with rental property insurance, though.
Insurance agents can evaluate individual risks and expect changes over time. They can also uncover coverage gaps in your neighborhood that you may not be aware of.
3) Plan Your Property Purchase
Another useful thing to do is to plan the financial aspect of your property purchase. That is, plot out how you intend to pay for its acquisition.
For instance, you should run up projections of your mortgage payments for the property. You can then compare the projections of payments for each property you’re considering.
You can do your mortgage payment calculations by hand. However, there’s a simpler way to do it and that’s through an online calculator.
Whether you use manual or online calculation, you need to be ready for information such as the loan term, the principal mortgage amount, and the monthly or yearly interest rate.
Use Real Estate Online Calculators
Potential investors can use an online mortgage calculator to know how much property they can afford.
A mortgage calculator will compare an investor’s total monthly income and monthly debt payments.
It will then indicate the monthly estimates of your mortgage payment.
At the same time, a mortgage calculator shows the amount of downpayment required, the interest rates, and the loan terms. It shows what property payments you can afford based on your income.
Choose the Right Purchasing Option
You have a lot of purchasing options available nowadays. But if you can, make a cash purchase since the processing will be faster and you’ll free yourself from periodic payments.
Another good reason is, when buying a house to rent out with cash, you can have more control over your property and you won’t worry about the risk of foreclosure.
But if cash is not possible, buying a house to rent out can be done through financing. Look for solid financial sources that are available in the market.
Note too that buying a rental property with a mortgage is easier, especially for beginners. In addition, you can take advantage of mortgage interest as a common taxable expense in buying a house to rent out.
4) Learn How to Fix/Maintain It Yourself
When thinking of buying a house to rent out, you have to calculate your expenses, commitment on your time, and needed resources.
One of the things you may have to think about is repair costs (for old properties) and maintenance (for both new and old ones).
On that note, you can actually do something to make the costs lighter on yourself. Just consider this — if you know what needs repair and how to fix it, you can save a lot on management costs.
Basic plumbing tasks like fixing faucet leaks and unclogging sinks are usually easy. It’s just about replacing a worn washer or gasket, or snaking a drain.
Learning basic “household upkeep skills” can thus help you keep down your expenses for your rental business. You won’t have to hire a professional to do all the work necessary.
Related to this, though, remember that when buying a house to rent out, it is a must to have it inspected by a realtor’s inspector. That’s for you to be able to know the structural condition of the property.
With that, you can estimate repair costs and future renovations. You can also learn what maintenance or “handyman” skills you need to acquire to take care of it.
Final Thoughts about Buying a House to Rent Out
Buying a house to rent out is a major investment and can be profitable. However, some precautions should be taken.
Take your time researching so that you know the right property to invest in. If you follow all the strategies I gave here, you can pick up the best building to rent out and give yourself an additional income stream.
The first thing that you should consider in buying a house to rent out is the location. If you want to find employed renters, you have to look for a place near business offices, or commercial establishments.
Another thing to consider in buying a house to rent out is to have an accountant that will help you to set a profitability baseline.
You also have to examine the property pricing and have a logical estimate for operating costs. Calculate everything and talk with your accountant to get earnings and projected cash flow.
Furthermore, calculate the cost of actually purchasing the property. Unless you plan to pay for it full-price and in cash, you’ll likely have to arrange mortgage payments or something like that in the future.
Doing projections for costs of that type can help you figure out which property is the best bet for you, given your current resources. It helps you evaluate properties’ merits from a financial perspective.
Remember too that when buying a house to rent out, you can save money if you look for one whose repair and maintenance you can do yourself.
That’s assuming you have some handy-man skills, of course — which you should consider acquiring, if you don’t already have them.
That wraps it up for my strategies for buying a house to rent out. If you have questions about any of them, leave them in the comments below.
If you need help marketing your business online then check out IM Consultant Services.
Disclaimer: This commentary is a matter of opinion provided for general information purposes only and is not intended to be taken as investment or trading advice under any circumstances. Information and analysis above are derived from sources and utilizing methods believed to be reliable, but we cannot accept responsibility for any losses any person may incur as a result of this analysis. Individuals should consult with their personal financial advisers. By using this web site or any information contained in it, the user specifically and expressly agrees that no advisor-client relationship is created between said user and any author, owner, executive, or principal of this web site by either use of this web site, or by any information, product, or service offered by or on this web site. No express or implied guarantees or warranties as to investment or trading results are made, and any perceived insinuations of such are hereby expressly disclaimed.