Before investing/buying a rental property for the first time, you might have some hesitation about whether you’re ready to take the plunge. From choosing the right location to finding out how to finance their investments, as a potential investor, you have much to think about. Despite the challenge of selecting investment properties, first-time investors shouldn’t shy away from the rental market if they have a solid plan in place and expert guidance about how to maximize their investments.
Here are eight questions every real estate investor has when buying rental property for the first time:
1. Are rental properties a good investment?
Whether you’re investing in a rental property for a supplementary income or to even achieve financial independence, buying rental property can be a good investment. The general rule of thumb is to stick with at least a 1% rule (rent is 1% of purchase price) when buying rental property.
2. What should I look for when buying a rental property?
- You hear it from both real estate agents and first-time homebuyers that what makes a good investment property is location. It’s one of the most important aspects of investing in a property. Choose a rental property that’s convenient to mass transportation or major highways – they have easy selling points to attract renters and you can charge a higher rent for the location.
- City growth is a great sign of rental property growth. Look for cities where companies plan to have an office, or where unemployment rate are steadily declining.
- Rental market demand should be stable or high. An example is Indianapolis, where the shortage of rental properties leads to a stable rental market demand.
3. What are good markets for investment properties?
If you’re just starting out as a rental property investor, you might want to start in places that have affordable home prices. For example, here are a few locations that have affordable real estate prices and offer solid returns:
4. How do I manage a rental property that is out of state?
A big worry for investors is the thought of remotely investing in rental properties. As an out-of-state investor, you should account for maintenance and whether you need to hire a property manager to take care of your rental homes when you are not around.
5. How should I fund my investment properties?
While funding an investment property is a big decision, remember that you have a variety of options for funding. Even though some investors prefer buying properties with cash, you can fund your investments with your retirement savings, including your Individual Retirement Account (IRA). Another option for first-time investors is to apply for financing from an investment bank. You can also fund a rental property using the investor loans available from Fannie Mae and Freddie Mac.
6. Are rental properties one of the best investments for retirement income?
By putting your IRA toward purchasing a rental property, you can create another source of income during your retirement. A rental property, when it is well-maintained and has great tenants, can last a lifetime, which is important when retirees need their income to last. Investing in an investment property can be an effective way to diversify your streams of income before and during retirement to help you live a comfortable life.
7. What kinds of rental properties should I buy?
Even when you already own a home, investing in a rental property is different than buying a home for yourself. In choosing the type of rental property you want to buy, you have the options of single-family, multifamily and commercial properties. While demand for multifamily properties are picking up steam, single-family homes dominate the rental market and there has been a rise in demand for these types of rentals from families hoping to save money before buying a home.
8. How do I find trustworthy real estate investment partners?
While there are obvious red flags that scream “get rich quick scheme” that you should recognize in any business, it might be harder to find firms you know you can trust to help you fund your investment. To locate the right investment firm for you, determine whether the contenders are knowledgeable about the areas you are looking to buy homes in and that they can answer your questions. When firms are more interested in helping you than themselves, you know you’ve found a good partner in real estate investing.