How to Buy a Rental or Investment Property
Buying a rental or investment property can provide long-term economic returns if done properly. Researching property locations, exploring average rental vacancy rates and conducting full inspections prior to purchase are three of the most important steps to take before signing loan documents. Mortgage and insurance rates are different for investment properties than for personal properties, so employing the advice of a real estate and/or lending professional is advisable.
- Difficulty:
- Moderate
Instructions
Things You'll Need
- Real estate demographics
- Pre-approved loan
- Property inspection report
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1
Get pre-approved for an investment property loan. Financial institutions that specialize in real estate and investment lending can provide you with information about how much money you qualify to borrow and what your interest rate will be. In general, investment property mortgage rates and the percentage of down payment needed are higher for investment properties than for personal real estate. Other parts of a loan application are similar, and you will be asked to provide proof of identification, employment and income via tax records. You will also be asked to provide bank statements, and depending on the size of the investment property you are considering, you may be asked to provide a business plan that outlines how you plan to keep your property occupied.
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2
Research the location of the property you are considering. Online search engines and local real estate offices can provide you with information detailing current rental pricing and rental vacancy rates in the area, and tell you whether property values are rising, declining or remaining steady. Rising or steady rates are good, while declining rates could be a red flag indicating that you may find it increasingly difficult to find suitable tenants for your investment property.
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3
Hire a qualified property inspector to inspect the property you are considering buying. A professional will check everything about the property from the stability of the foundation to heating and cooling systems, plumbing, electrical components and the potential for pests or molds. When you receive the inspector's report you can use the information to negotiate the asking price.
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Make a formal offer on the property via the property's owner or real estate representative. The offer should be presented in writing and should include the price you are willing to pay, the date you would like the property to be available and any contingency clauses or special requests, such as the requirement of the existing owner to fix, repair or replace items identified in the property inspection report. The offer should also be accompanied by paperwork detailing your loan approval and the amount of money you are willing to make available as your down payment.
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Negotiate, as needed, to reach a compromise if your initial offer is rejected. In many instances a property owner will come back with a counter offer, which you can accept or decline.
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Tips & Warnings
Check property zoning at the local city planning department prior to making a purchase offer. This will let you know what, if any, future development is slated to take place around the area in which your potential investment property is located. Development plans for parks and greenways will potentially increase the value of the property, whereas plans for highway construction or heavy retail development may decrease the property value over the long-term.
If you purchase a property in an area you do not personally live in, consider hiring a property management company to oversee rent collection and property maintenance.
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References
Resources
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