If there is one thing any investor can do, whether new or experienced it’s being prepared before taking action. It not only saves time and effort, but also puts you in a position to make a better decision.
Let’s talk about some things to already have decided before buying a rental.
Five Things to Remember Before You Buy Your First Rental
1.) Focus in on a few neighborhoods
If you are searching too large an area it can be difficult to recognize if a property is a good deal. Sales and rental prices can vary from one town to the next.
Focusing in on a couple neighborhoods and learning them well gives you an edge against others who are not doing the same.
In the end, the neighborhood is more important than the deal. Yes, you read that last sentence correct. If you buy something in an area where people don’t feel safe it will be hard to attract quality tenants.
A decent neighborhood is always better because you can easily fix a property, you can’t easily fix a neighborhood yourself.
2.) Do you want to do Renovations or Buy Turn-Key?
Just because you buy a rental property doesn’t mean it has to be a rehab project. If the numbers works on a turn-key property and you don’t have the time or team to handle a renovation then this can be the best route.
Don’t forget to factor in 8-10% of rents to pay for property management if you are going to be hands off.
Either way, decided which is right for you and then pursue properties accordingly.
3.) Research Local Comps
You want to know what homes are selling for in the area as well as the rents they are getting. Closed sales and filled rentals are your most solid source of information.
How long are rental listings taking to be filled? What is the average number of days a property for sale is on the market. Information such as this helps us make quick decisions and recognize a deal fast when it hits the market.
Again, the better you know the neighborhood the more pinpointed you will be with your numbers and analysis.
4.) Get Quotes for Repairs
The beautiful part of an inspection contingency on a sales contract is it allows you time to build a rehab budget. After the inspection is done you will know all that needs to be repaired and can bring in contractors for quotes.
If it turns out there is more work than expected and the renovation will be too costly for the deal to makes sense then you can execute your right to cancel within the inspection window or see if the buyer is willing to meet at a number that will make the deal work.
5.) Speaking of Numbers, run them twice!
It almost seems trivial, but running your numbers a few times to make sure you haven’t made any mistakes is just plain smart. More importantly, it gets you to look at them a couple times and get confirmations that they are realistic estimates.
These five items will help you focus in on an area and find potential deals, which you can get under contract and then confirm the numbers work with reno estimates from qualified professionals.
For even more steps to successful real estate investing read ScaredyCatGuide to Investing in Rental Properties!