How to Select a Rental Property
When most people imagine themselves owning rental property, they think of the positive aspects. Building equity in a piece of property by letting someone else pay you to live there can be a great investment. However, if you want to be successful as a landlord, one of your most important decisions will be among your first: what property to buy and for how much.
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Instructions
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Consider your tolerance for risk with your investment. Research rental properties in established neighborhoods to reduce risk; you will pay more for the property, but it will be less likely to lose value. Increase your potential profits by purchasing a rental property in a lower-end neighborhood with the potential for growth. Remember that the property will probably be cheaper initially, but if the neighborhood deteriorates, your property will lose value rather than appreciate.
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Choose between single-unit rentals and multi-unit properties. Multi-unit properties will generally provide more income in the long run but will cost more upfront.
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Research the job market, school system and crime rates in the areas where you are considering purchasing property for rental purposes.
Purchasing property in areas that are more desirable will allow you to charge a higher rent; however, properties will cost more in these areas. Properties in lower-end neighborhoods will cost less but you may have more tenant management issues.
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Search for rental properties. Use Web searches, classified ads, and references from friends, real estate agents and fellow investors to begin your search. Explain to the agent what type of property you are looking for; a good Realtor will show you a number of properties that fall within your selection criteria.
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Ensure that the properties that you are considering are priced so that you can make money from the rent they will produce. Ask your Realtor to help you find bargain properties in the area where you want to buy. Your annual rental income should, at a minimum cover all of your costs, including your mortgage.
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Consider all of the factors affecting your decision. Write down the positives and negatives about each property you are considering; compare the properties objectively.
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Tips & Warnings
Don't forget to consider financing of your property when you are making a selection; the type of property, location, and if it is vacant or not will all affect your financing options.
Ensure you really want to be a landlord before purchasing a rental property; remember that this investment will take significantly more time and effort than owning a paper investment like stocks.
References
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