Ready to make the leap and become a real estate investor? Here are some tips to help you find and buy your new house to rent out. Show
1. Decide If You’re Buying With Cash Or Getting A MortgageYou may be tempted to buy with cash and forgo monthly mortgage payments, but doing so may tie up all of your money into the house. Additionally, you could be missing out on mortgage interest deductions if you purchase in cash. Look at how much money you have saved up and decide if you can afford to buy without taking out a loan. If not, explore your financing options and choose the type of loan that best fits your needs and your budget. 2. Save For Your Down PaymentThe down payment required for an investment property is typically higher than the down payment required for a primary home. If you’re buying a rental property, you need a down payment of 15% to 25%, depending on the loan type. It’s a good idea to start saving up as soon as you think you’re interested in investing in real estate. If you’re still short on cash, you may be able to take out a loan to cover the rest of your down payment. Consult a financial professional to discuss the best options for your unique situation. 3. Get PreapprovedGetting a mortgage for a rental property, also called a non-owner-occupied loan, isn’t much different from getting a mortgage for a primary residence. In most cases, you’ll use a Fannie Mae or Freddie Mac loan for an investment property, and it will be either a fixed-rate or an adjustable-rate mortgage. As always, it’s important to start with a preapproval since it shows the interest rates and terms you qualify for. Preapproval also shows that you’re a serious and reliable buyer – all good signs of a responsible new landlord. 4. Scout Your LocationLook for a rental property in a neighborhood that’s safe and sought-after. Research local amenities, school districts, access to public transportation and crime statistics before you choose a property. The more appealing your neighborhood and the more popular the area, the more likely it is that you can rent out the home. Our sister company, Rocket Homes℠ can connect you with a local real estate agent who can help you find the right rental property. 5. Check Rental Market And Rental PricesLook at a neighborhood’s rental statistics. What’s the average price of rent? How many bedrooms and bathrooms are common for the area? Do most residents choose to buy a home or rent their space? How many vacancies are currently on the market? Vacancies and rental prices will directly affect your bottom line as a landlord. You need to price your unit to compete with other vacant rental units, but you also need to charge enough rent to make money. Look for properties in areas with higher average rent prices and lower vacancy rates to maximize your return. 6. Consider Fixer-Uppers Vs. Ready-To-Rent UnitsYou also need to consider the condition of the rental property before you invest. You have a legal responsibility as a landlord to provide a safe home for your tenants. If you buy a home with a broken heating system or a damaged roof, you’ll need to fix these issues before you can rent it out. It’s usually a good idea for first-time landlords to choose a “turnkey” property – that is, one that’s in ready-to-rent condition. However, if you have experience in home repair, you may be able to save money with a fixer-upper. 7. Look Into Local Property TaxesHomes in areas with highly rated school districts and plentiful public amenities often have higher property tax rates. If you’re buying an investment property in a desirable neighborhood, you’ll need to be prepared to pay higher taxes and price your rent accordingly. The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you. Editorial disclosureAll reviews are prepared by our staff. Opinions expressed are solely those of the reviewer and have not been reviewed or approved by any advertiser. The information, including any rates, terms and fees associated with financial products, presented in the review is accurate as of the date of publication. SHARE:
 divanov/Shutterstock 9 min read Published November 02, 2021 CheckmarkExpert verified Bankrate logoHow is this page expert verified? At Bankrate, we take the accuracy of our content seriously. “Expert verified” means that our Financial Review Board thoroughly evaluated the article for accuracy and clarity. The Review Board comprises a panel of financial experts whose objective is to ensure that our content is always objective and balanced. Their reviews hold us accountable for publishing high-quality and trustworthy content. About our Review BoardWritten by James Royal Written by James RoyalArrow RightSenior investing and wealth management reporter Bankrate senior reporter James F. Royal, Ph.D., covers investing and wealth management. His work has been cited by CNBC, the Washington Post, The New York Times and more. James Royal Edited by Brian Beers Edited by Brian BeersArrow RightManaging editor Brian Beers is the managing editor for the Wealth team at Bankrate. He oversees editorial coverage of banking, investing, the economy and all things money.
Brian Beers Reviewed by Kenneth Chavis IV Reviewed by Kenneth Chavis IVArrow RightSenior wealth manager, LourdMurray Kenneth Chavis IV is a senior wealth manager who provides comprehensive financial planning, investment management and tax planning services to business owners, equity compensated executives, engineers, medical doctors and entertainers. |
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