How to Start Investing in Rental Properties

Investing in rental properties can generate income if done properly. According to CNN, mortgage rates are at their lowest in past 40 years and there is an abundance of cheap homes available. Therefore, it is a good time to invest in a rental property. Investors must be creditworthy to ensure they can secure loans if needed. Investors have many ways to finance a rental property. Therefore, investors should find the best finance option for their situation. It is good idea to research the location. For beginning investors, it is important to keep their first purchase simple; therefore, single family home should be an attractive investment to novice real estate investors. Tenants should be ready to rent; therefore, investor should conduct a thorough tenant screening to ensure they find a good tenant.

It is very important for investors to have a good credit rating. Without a good credit rating, investors will find it difficult to secure funding for a rental property.  Therefore, investors should have a credit score of 680 or higher before thinking about purchasing a rental property. Banks are quite fearful of making any loan to anyone in such difficult economic times. Investors with poor credit will make it easier for banks to deny them a home loan. Therefore, investors should review their credit report before trying to get a loan from the bank. By reviewing a credit report, investors will be aware what the bank will see when their loan application is being reviewed. Once an investor has credit rating necessary to get a home loan, they should be aware of the financing needed to purchase a rental property.

Rental properties are usually financed by the typical 30-year fixed rate mortgage.  However, investors could borrow money from family and friends. Investors can borrow money from other investors with a promise to pay them a percentage of money made on the investment.  In some cases, investors can use money from a self-directed IRA to finance rental property. Investors should be aware of all cost associated with purchase of a rental property to ensure their financing will cover it. Closing cost, taxes, and other expenses such as insurance all should be considered before making a purchase. A good investor of rental property must do their research.

Research of the location includes finding out the average rents paid, quality of the neighborhood, and average length of time a property is vacant. By understanding average rents for the area, buyers will know how to set the rent for their property. The quality of life can be determined by talking to residents, checking crime reports, looking at schools and entertainment found in the area.  The quality of life entices people to live in the area, and some people will want to rent a home. The single-family home should be the beginning investor’s first rental property investment.

A single-family home as rental property is popular with people who desire to rent.  For the beginning investor, a single family home will be cheaper to purchase than investing in commercial rental property. They are much easier to rent than most other rental properties. In worst case, if home is vacant for a long period, investors would pay the mortgage, and it would be cheaper than commercial property’s mortgage. The single family home is the ideal rental property for beginning investors, but tenants must be found to occupy the property.

Investors must hire property management to find tenants, or they must do it themselves. Investors should ensure credit and reference checks are made.  It ensures potential renters can afford the home and ensure they were good tenant at their previous residence. People should not waste their time dealing with potential renters who will be unable to pay the rent. Therefore, it is important that investors or property managers take their time when conducting background, credit, and reference checks.