Tuesday, June 11, 2013

Should I Purchase a Rental Property?

By: Lea France at Fannie Mae

With rental rates increasing, many buyers are interested in purchasing rental properties. Below are some tips you may want to consider before you start investing in real estate.

1. Get Involved in the Landlord Association
This is one of the best ways to become involved with other Landlord's and to keep updated on new laws. Join the Landlord Association and Tenant Associations and go to meetings so you will be informed on "how to be a landlord" before you purchase any properties.

2. Do Your Homework
Read everything you can about real estate investing. You need to understand all the expenses and headaches that are involved in owning rental properties. Talk to other landlords about their experiences and what they would do different next time they buy a rental property.

3. Size of Property and Tenants
Find out what size of property that you can actually afford to purchase, and what location you want to purchase your property in. When you are making this decision, you will need to know what type of tenants you are going to target, (students, families, retirees, or young professionals). If your target is going to be students, then you need to consider purchasing your rental property in a close location to a college or university.

4. Profit, Rental Income and Rent Increases
Profit? There is profit in rental income properties. But you need to know how to generate it.
How much profit do you want to generate per month after all the expenses have been paid?  Ask yourself what the profit is going to be used for, (immediate spending or long-term pension plan)? Keep in mind that when you invest in real estate, your aim should be to put money to work today and make it grow so you have a lot more money in the future. Remember that you need to make enough profit to cover the risk you take, taxes you pay, and the costs of owning the real estate. Once you have reliable tenants, be reasonable on the rent increases. Raising the rent by a large sum, could drive your tenants away and  could cost you a lot more money in the long run. If you lose all the tenants, due to rental increases, or tenants decide to purchase a home, or move out of state, will you have the funds to pay the expenses for 6 months?

5. Repairs and Getting out your check book
You are going to continually be making one repair after another to the property. The repairs will maintain the value and some repairs will increase value. Repairs are something you will have to do through out the life of the property. 

Written by:  Lea France, Sales Representative at Fannie Mae