How to invest in Real Estate Rentals

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By Driverinmyhead
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invest in Real Estate Rentals

Ready to diversify your portfolio? Don't have a portfolio? Follow along as I outline how to invest in rental properties.

Difficulty: Moderate

Instructions

Things You'll Need:

Cash or Loan
Background knowledge of Real Estate investing
Desire to see a project through completion

Step 1

Purchasing Real Estate with the intent to rent it out requires a well thought out plan.

Begin by researching rental markets. I will say right off the bat, that you do NOT have to buy a property near your home, Town or even STATE!
Follow the National market, where is the money? Also, consider major companies or Military movements. Is University enrollment at an all time high?
These are the areas that will experience the highest gains in rentals!

Consider Multi family as well as Single family homes. For most Banks and lenders, anything under 4 units can be financed conventionally.
If you are buying in another area, find a good local Realtor! Trusting your Agent, combined with available technology should allow you to purchase with as few trips to the property as possible. Your Realtor is a Professional, value their opinion.
Next, find a good rental agency in that same area. If you are purchasing locally, everything will be much easier.
Step 2

Once you have an idea of where you would like to purchase and have some research, it's time to obtain financing. Most lenders will have programs for Non-owner occupied. Be prepared to put more money down (up to 20%), plus closing costs.
With your pre-approval in hand, it's time to find that perfect property!
Step 3

Use the internet as much as possible! Email is fantastic for communication and receiving documents!
Satellite based mapping allows you to view potential properties from a Bird's eye view.
Also, many websites allow you to search for properties for sale. Use these resources in conjunction with your Realtor!
Multi Family properties are usually more expensive and require more maintenance, but spread the risk over several units. Single family homes are more common and easier to purchase, but a vacancy can ruin the average potential investor.
Foreclosures can also get you started on the right foot (low initial investment), but beware! Many Foreclosures have damage, neglect and are located in areas with Economic hardship.
Step 4

Once you have a property picked out, do yourself a favor and pick 1 or 2 back up properties. Just in case the first one fails inspection or is sold from under you, the next property can be under contract ASAP.
If everything goes smoothly, you will be under contract to close. NOW is the time to travel if you must see it in person. Plan to be at the inspection. Stay a few days if possible, and require your Realtor to allow clauses and contingencies to back out of the deal. If all goes well, contact your rental agent for an evaluation of that particular property.
Calculate your mortgage against the Agents Rent estimate. Also calculate repairs, improvements, taxes and potential vacancies.
If everything makes sense financially and the property passes a structural and pest inspection, move forward!
Step 5

Once the property has closed and you are the legal owner, hit the ground running!
Make sure that any repairs or improvements are made ASAP! Prepare for at least 2-3 months vacancy before the rental income starts flowing in, and maintain a good relationship with your Realtor.
All things being equal, the odds are in your favor. Everyone needs a place to live and home ownership is set for another downturn. As inflation rises, so do Rental prices.

One more thing: Once you have a rental contract with a lease, you should be able to borrow another loan for another rental! Have a plan and try to obtain as many low risk, income producing properties as you possibly can!

Good Luck and check out my other Real Estate articles!