How to Buy a House to Rent Out
Some people buy houses to sell, while others choose to hold onto the house and rent it out to tenants. Renting a home comes with its share of headaches and risks, but if you set up the home and the rental arrangement right this business idea can help you build wealth.
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Instructions
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Get pre-approved for a mortgage loan. Ask the lender about special programs for investors, such as adjustable rate mortgages that will vary after five years of owning the house. If you're buying the house outright with cash, you can skip this step and the process will be much easier. You will just need to go to closing with a certified cashier's check for the sales price plus taxes and title fees (the final figure will be given to you by the real estate agent or title company).
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Look for duplexes (and multi-plexes), townhomes, rowhomes and small single family homes to purchase because they are usually easier and more cost-effective to rent out.
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Settle on a home that is reasonably priced. To get an idea of what is "reasonable," put the house price and estimated loan interest rate in a mortgage calculator to determine the mortgage payment (if applicable). Ask yourself, "Can I afford this payment if I don't have a renter?"
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Research the average rental prices in the area of the proposed home for the type of unit you are looking to buy. You can get an idea of what people are paying to rent apartments and homes in that area by looking in the "For Rent" section of Craigslist.org or by checking the rental listings in local publications. Your real estate agent can also provide you with guidance in this area---most agents have special statistical tools at their disposal.
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Compare the mortgage payment with the expected rental price to see whether you would break even or make a profit by purchasing the house and renting it out. Once you evaluate the costs and benefits, you can proceed with the purchase, finalize loan paperwork and sign a sales agreement with the seller through your real estate agent.
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Go to closing for the rental home to transfer the deed into your name and get the keys to the house. This is a date that is agreed upon between you and the seller of the house.
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Start advertising the home for rent in local classified ads. Place an ad on the following websites to maximize your audience: Craigslist.org, ForRent.com, Rent.com and Rentals.com.
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Prepare the house for your renters. The entire house must be cleaned, rooms must be repainted, fixtures have to be repaired and any safety hazards need to be corrected before your renters move in.
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Tips & Warnings
Consider hiring your real estate agent for two jobs---to help you buy the home and then to rent it out. There will be an additional fee, but the agent will show the home and take the potential renter through credit and rental checks.
