50 Tips for Investing in Rental Property
Here are some tips for investing in rental property. Click through the links to get more specific information. This website is loaded with free real estate investing information, so take advantage of it.
Getting past the fear
Many people dream of buying investment rental property but are afraid to pull the trigger. They look at property, read lots of books, search the real estate ads, but never make an offer for a property. How do you get past the psychological hurdle and take the plunge? There are 4 major barriers that people seem to have that prevents them from starting to invest in rental properties:
- Fear of large debts - read
how to get rich
- Inability to get financing - read about
How to Finance Investment Property
- Concern about dealing with tenants - read about the
Rent to Own Strategy
- Lack of confidence over making repairs - read about
Fixing up Property
Getting the knowledge Some people jump into real estate investing without a thought or plan. Big mistake! Get some knowledge - Spend some time reading
books on real estate investing
- Join your local
real estate investment club
- Participate in a
real estate forum
, like BiggerPockets
- Take your time and buy houses slowly at first - you don't need to feel that you have to get rich overnight
What Type of Real Estate Investment to Buy?- You may have lived in a house or you do now
- Houses are the most liquid of real estate investments
- You can build your experience and confidence slowly dealing with one tenant
- So a big tip for investing in rental property is to
buy a house
Easiest Way to Start Investing in Rental Properties- Buy a house that needs cosmetic upgrades
- Fix it up to make it more valuable
- Rent it out using a
lease-purchase agreement
- Buy another house
Before you Start Looking for Property
- Start saving money for a down-payment
- Clean up your credit report
- Talk to a mortgage broker to see what kind of loans you might qualify for
- Talk to successful people,
family and friends
to see if anyone is interested in loaning you money with their
self-directed IRA
or has cash to invest
- Look for houses in the starter home price range for your area
- Find the rents for comparable homes
- Will the house generate a positive cash flow when subtracting PITI from average area rents? Don't buy a negative cash flow and hope you make out on appreciation.
- Are the
sellers motivated
due to special circumstances? If not, don't waste much time.
- Look at lots of houses before making an offer - get a good sense of what comparable houses are selling for
- Use a buyers agent if you are using a real estate agent - not the sellers agent
- If you use a real estate agent, find a young, hungry one. A successful agent will not want to be looking at dozens of houses with a new investor
- Cruise neighborhoods on a bike or in your car to see what an area is like before deciding if you want to invest there
- While cruising neighborhoods, make a note of any houses that look like they are vacant
- You can
find foreclosures free
by looking up the addresses of houses that look abandoned at your local county Courthouse
- For your first house find one that needs cosmetic changes - don't try to tackle a major rehab job
- Do a thorough
home inspection
before you make an offer
- Always offer at least 25% below asking price. If there are multiple offers - walk away
- Always include a "subject to" clause in any offer to allow you an out (subject to...financing, inspection, legal approval, etc.)
- Line up your
investment property financing
before making an offer
- Don't buy one bedroom houses - too hard to sell or rent out
- Always keep in mind your strategy when buying - if no one will rent the property due to location, don't buy it
Closing the Deal- If it's your first purchase, consider having a
real estate attorney
look over the contract
- If you are not an expert at
home inspection
, consider spending a few hundred dollars to have a professional home inspection done. You could learn how it's done by watching.
- If you are getting
seller financing
- make sure the Deed is recorded. If there is a problem, it will be much easier if there is a public record of a sale showing you as the owner.
- At the closing, double check all of the documents. I've seen many errors on closing papers in my 20 years of buying and selling.
Fixing Up Your Property- Make a list of all the upgrades that need to be done
- Look over the list of
best home improvements
and complete those in the order I've described
- Decide if you can do it yourself, or if you need to hire a
general contractor
or just some sub-contractors
- Don't be intimidated by doing repairs yourself. There are many "how-to" videos on YouTube now. With time, you can learn to do many tasks yourself
- Remember curb appeal is needed to get prospects in the front door
- Be sure to seal any peeling paint that may be
lead-based
Renting Out Your Property- Read about how using a
rent to own strategy
you will get a better quality tenant
- Use free rental ads on Craigslist or a
"rent to own"
sign - ads in big newspapers are a waste of money
- Always screen your tenants. Get the names of the last two landlords. The current landlord might give a good reference just to get them out
- Always get all of the money upfront. Don't let tenants "make payments" on their deposit or option
- Document everything you say to tenants or do in response to complaints. Expect that at some time, someone will sue you
- With a
lease-purchase agreement
you are also getting some extra money in case tenants default or damage your property
Records and Taxes- Guess what - if you own rental property you are at high risk for a tax audit - so keep good records
- Learn a little bit about
tax laws
and all the advantages of owning rental property
- Don't ever be afraid to take all of the tax deductions due to you - the IRS won't give you brownie point for not taking a deduction
- Never fear an audit - I've been audited 4 times and not ever lost to the IRS - just keep good records
- Make sure you have at least $1 million of liability insurance
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