Six Tips For Buying Your First Rental Property
If you’re thinking about purchasing a rental property and beginning your property portfolio, there’s a lot you need to know. Real estate can be an excellent investment and business move, as long as you make smart choices.
There are lots of things you’ll need to learn before you buy your first rental property, from how to recognise a good investment, to how to deal with difficult tenants. Instead of spending your nights googling, ‘What is a Management Pack?’, take the time to study these tips to prepare you.
- Pay down personal debt. Some savvy investors career debt as part of their portfolio investment strategy, but most people should avoid this. If you have debts like student loans, unpaid medical bills, or kids about to go to college, then it might not be the best time to buy a rental property. Caution is key. Make sure you have a cash cushion so you’re not in the position of not being able to make a payment on your debt.
- Secure a down payment. Investment properties usually need a bigger downpayment than owner-occupied properties. They also have more stringent approval requirements. You will likely need at least a 20% downpayment. You might be able to get this through bank financing, like a personal loan.
- Find the right location. The last thing you want to happen is that you end up stuck with a rental property in an area that is declining instead of improving. An area where the population is growing or a plan for revitalization is underway is a better potential investment opportunity. When you’re choosing a rental property to buy, look for a location with low property taxes, a good school district, and plenty of amenities that renters will look for like parks, shops, and restaurants. You’ll have a larger pool of potential tenants if you buy somewhere with a robust job market, low crime rates, and good access to public transport.
- Get landlord insurance. Protect your investment when you’ve bought it. As well as homeowners insurance, you definitely need landlord insurance too. This kind of insurance will cover damage to the property, lost rental income, and liability protection, which covers you if a tenant or visitor is injured as a result of maintenance issues in the property.
- Factor in unexpected costs. It’s not just the costs of upkeep and maintenance that can eat into the profits that you make from rent. There’s also always the potential for an emergency to happen, like roof damage after a storm, or a burst pipe in the bathroom. Put aside a good chunk of your rental income to prepare for costs like this, so you have a fund ready to pay for repairs and costs you can’t plan for.
Buying your first rental property is always a big decision, and there’s a lot you will need in place, from the funds to the knowledge of how to maintain a property. Make sure you’re prepared to make such a large investment.