7 Things to Absolutely do BEFORE you buy your First or Next Rental Property
Finding the right rental property is certainly one of the first steps to success in owning investment real estate. Below is a quick start guide in finding the right property that will help you generate additional income.
First, consider whether you want to look for rental property on your own or whether you wish to use a Realtor who deals with investors regularly to assist you in the process. In many cases, these Realtors may know of properties just coming on the market, which may not have yet hit MLS.
The ‘investor minded’ agent should be well-versed in the local neighbourhood, which can be especially important if you are not from that area, however make sure the agent you choose has a rental property themselves. If they don’t, I highly recommend looking for one that does to ensure you are speaking the “same language.”
Secondly, before you even begin looking at prospective properties, make sure you have your finances in order. Ideally, you should check your credit report several months prior to purchase to be certain there are no inaccuracies that could prevent you from obtaining a mortgage. Be sure to check with at least two bureaus (Equifax and Transunion in Canada) to get a clear picture of your credit standing. Assuming your credit is in order, this can help you to obtain a more favourable interest rate.
Thirdly, be sure to check with the local police department to find out whether the area is safe and if you will need to provide any additional security. Drop by City Hall to determine whether there are any zoning plans for the local area that could potentially lower, or perhaps increase the value of the property.
Forth, and this is crucial…Research prices, rental rates, vacancy rates and tenant absorption rates. If housing prices have gone down recently, this could be an indication that rents will also be lower. Conversely, if prices are high, this could indicate a high demand area in which you may be able to charge a higher rental amount.
Fifth, carefully consider the advantages and disadvantages of purchasing a property labelled as a “fixer- upper.” While you may be able to purchase the property for less money than other properties, you may find that you have purchased a “money pit.” In the event that major repairs are required, equating to a large investment of both time and money, it would be better to pay more for a property that may require less attention but still produce cash flow.
Sixth, This is a must!!!: hire a professional property inspector who checks many things in a property that could cost y money. Knowing if the electrical meets code, no lead paint, plumbing is good and the overall property is safe gives you confidence in the long-term value of the property. An inspection can often reveal problems you may not notice but could ultimately cost thousands of dollars to correct.
Seventh, just because you really want to get into the market, do not make the mistake of settling for an inferior property and ‘forcing’ a deal. This can come back to bite you in many ways which usually is right in your bank account. It all comes down to the numbers.
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