Things to Consider When Buying Your Next Rental Property

Buying rental properties can provide an investor with ample benefits. As an investor, you are your own boss, avoiding glass ceilings. In addition to the freedom and independence of self-employment, owning rental properties also provides income as well as tax breaks. But before you sink your life savings into real estate rentals, it’s important to understand these things to consider when buying your next rental property. Know the risks, and work with the most qualified real estate agent who specializes in rental properties.

As an investor purchasing rental properties, you have the privilege of self-employment. Although you’ll still need to be a motivated business person, you won’t have to punch anyone else’s time clock. You will, however, need a business plan and a model such as “the snowball method” of investing. With the snowball method, you can grow your investment properties and income exponentially.

The popular snowball method of investing in multiple rental properties allows for a single property to generate income, which is used solely for the purchase of the second property. The combined cash flow from the first and second rental properties allows for a third purchase in half the time of the second. Purchase a fourth in half the time as the third, and so forth.

When you have enough properties in play, you can then adjust your snowball method to begin paying off mortgages versus buying a new piece of real estate, ultimately aiming for a debt-free income stream.

Choose the location of your rental properties wisely so they’ll produce. Your decision should be based on logic and statistics such as employment rates, population growth, increase in home values, and rental yield. Other factors to consider include weather, natural disasters, and flood zones. Although waterfront properties are ideal for vacation rentals, they may also be positioned in flood zones, requiring additional homeowners’ insurance.

Regardless of which city in which you choose to buy, consider the neighborhood, property taxes, schools, amenities, crime, and future development. When looking at neighborhoods, be aware of which may include association fees as this can drastically alter your bottom line.

When pondering locations and rental properties to purchase, only entertain possibilities that renters will find appealing and affordable so that finding tenants won’t be a problem.

Sadly, some first-time investors imagine themselves pocketing the full amount they charge tenants for rent. Failing to figure in unexpected costs, maintenance, and upgrades is a mistake. In addition to the mortgage on the property, if you borrowed, you’ll also have costs for property taxes, homeowners’ insurance, repairs and renovations, and potentially management company fees. Only after you’ve paid your properties’ expenses can you count profit.

Failing to property estimate expenses can derail your rental property train faster than anything. Not only does the property have expenses, but there’s no guarantee you’ll have tenants year-round for the duration of your ownership. Best practice suggests you set aside five percent of the property’s income for maintenance and an additional five percent in savings for those periods of vacancy.

When following the snowball method of investing in rental properties, the idea is to start with one rental property, saving all of its profit to apply toward your next purchase. But how do you know when you have enough to double-down?

Account for the down payment for your next property, but also for the property taxes and homeowners’ insurance. Then, estimate your costs for acquiring tenants. Figure in the maintenance and vacancy costs for preparing the property for its first renters.

When your business model includes purchasing multiple rental properties, it’s imperative you work with a qualified real estate agent. Your real estate agent should have experience in dealing with rental properties and should have stellar ratings and reviews.

Not only should your agent have experience in the rental property niche and a remarkable reputation, but they should also be easy to contact, pleasurable to communicate with, and eager to provide you with excellent customer service.

Owning multiple rental properties provides many benefits to investors. Investors can enjoy self-employment, ample income, tax breaks, and more. When you plan, prepare financially, and team up with the most highly qualified professional real estate agent in your area, you’ll find that the sky is the limit for your dreams of real estate investment success.

Your real estate agent is the best source of information about the local community and real estate topics. Call or Text Anne at (707) 245-6090 | Michael at (707) 849-5589 to learn more about local areas, discuss selling a house, or tour available homes for sale.