How To Buy A Rental Property

I have a friend who, over the course of his 3 decades long career, acquired a number of  rental properties as an investment for his retirement. Now, he has a nice retirement check coming in from his employer, as well as 8 properties worth of monthly rents on his paid off properties, leaving him quite free to enjoy his “golden years”. I make it a point to talk about this friend to many of my clients, especially the younger ones who have many years to build an investment portfolio that includes real estate. Is becoming a landlord right for you? If the answer is “yes”, you will want to know how to buy a rental property that will be easy to own, easy to pay off via tenant rents, and most likely to have low vacancy rates. Some of the guidelines are as follows:

• The best location in which to own a rental is near an employment center, near a freeway, or near a university. Rentals are consistently in demand in these locations and vacancy rates are notoriously low.

• A three bedroom/2 bathroom floor plan is the most in demand property. You may be tempted to save money by purchasing a 1 or 2 bedroom property. The tenant pool for that size home is significantly smaller than those looking for a 3/2 to rent.

• Leave the swimming pools to the owner occupied properties. A pool requires additional maintenance, is costly to own and exposes the landlord to unnecessary liability

• Watch those HOA fees! Your monthly carrying costs can take a significant jump when you rent in a neighborhood that has one or more associations charging exorbitant fees. Remember to include HOA fees in calculating monthly expenses.

• Upgrades? Who needs upgrades? The home you purchase for investment purposes need not be as updated as the home you choose to live in. A lightly updated property will rent for nearly the same rent as one that is HGTV ready.

• Have a property management company in charge of finding tenants, collecting rents, managing maintenance and repairs. Typically a 10% fee will keep you from receiving panicked phone calls in the middle of the night or chasing rent payments.

• If you choose not to use a property management company, have a list of reliable home improvement and repair companies at your fingertips.

• Purchase a home warranty to cover the little stuff that inevitably goes wrong in a home at minimal cost. Garage door openers, minor a/c repairs, appliances, plumbing leaks, etc. do not have to keep you up at night wondering about the cost.

• Make sure you’ve done the math to determine whether a particular property is a good investment. There are lots of investment calculators that can help you figure out your short term and long term ROI.