A rental property is a great investment in real estate, which you can use as a personal residence down the line or resell later on for capital gains. As you work with your real estate agent, you will be able to analyze properties for their potential cash flow and make sure the rent covers your expenses. Here are some recommendations to help you search for and find the right property that you can turn into a rental property for your investment portfolio.
Look For a Good Cash Flow
One of the first and most important rules in rental property ownership is to make sure your property has a positive cash flow. So before you find a property and submit an offer to purchase it, you should do some number analysis and be sure you can cover the property's expenses by its income.
You can find an online cash flow worksheet to help you in this analysis or ask your real estate agent to help you in figuring this important calculation. Include important expenses on the property, such as repairs and maintenance, city sewer and garbage collection costs, and your mortgage expenses.
Get the Right Financing
There are many options to choose from to finance your purchase of a rental property. If this is your first purchase, you might choose to talk to your mortgage broker about getting a traditional mortgage for the property. There are a variety of programs available to fit within the budget of your rental property.
If you don't want to use a mortgage broker that will review your credit, you can look for a seller financing property. This type of sale is one in which the seller allows you to make monthly payments to them over a period of time. Be sure you understand the interest rate you are paying, get it in writing, and understand how long the contract is for and if you have to refinance at a later date.
As another option, you can look for a lease option where you pay rent payments and have the option to buy the property after a specified time. A lease option is similar to a rent-to-own, and you can rent out the property to a tenant immediately after signing the lease agreement, which will help you pay for the lease payments. Ask your real estate agent to help you with this contract process, as they will have experience they can help you more smoothly complete the transaction.
Be sure to research the rental market to find out how much you can realistically ask in rent. And also make sure your costs are able to be covered by the rent you collect from a tenant.
Contact a real estate agent, such as Danielle Edwards Re/Max, to get help purchasing a property.