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Are you interested in investing in real estate and generating passive income? Owning a rental property can be a lucrative venture, but it's essential to approach it with the right strategy. To help you get started on the right foot, we've compiled our top tips for buying your first rental property and becoming a successful landlord.
1. Determine if You're Ready to Become a Landlord
Becoming a landlord comes with responsibilities beyond passive income. You'll need to manage tenants, handle maintenance issues, and create rental applications and lease agreements. It's crucial to assess whether you're prepared for these obligations or if you should hire a property manager.
2. Secure a Larger Down Payment
Financing a rental property typically requires a larger down payment and higher fees compared to owner-occupied properties. While most mortgage loans require a down payment of 3% to 20%, investment properties often require a minimum of 20% due to the higher risk involved. Building up savings can help cover the down payment and other financing expenses.
3. Find Local Investment Properties
Location is key when buying a rental property. Look for properties in desirable areas with sought-after amenities and proximity to highly-rated schools. You can seek assistance from a Realtor specializing in real estate investing or use online platforms like Realtor.com® to find suitable properties.
4. Create a Rental Property Business Plan
Establishing a rental property business plan can provide clarity on your goals, strategies, and objectives. While not mandatory, having a plan in place before launching your rental business will help you navigate challenges more effectively.
5. Determine Your Rent Price and Operating Expenses
Identify the appropriate rent price and consider all operating expenses to ensure profitability. Research rental sites and consider investing in an Avail Rent Analysis report for comprehensive insights into rental comps and demand in your area. Operating costs include maintenance repairs, property listings, apartment turnover, and tenant screening.
6. Use a Rental Property Calculator to Determine Margins
Utilize the Avail Rental Property Calculator to evaluate the profitability of your investment. Input the asking price, financing method, and rent price to obtain estimates of monthly income, cash-on-cash return, and other financial outputs. Adjust your inputs to achieve your desired return on investment.
7. Purchase Landlord Insurance
Protect your rental property by investing in landlord insurance. Insurance providers offer various policies with different levels of coverage. Additionally, require tenants to purchase renters insurance to protect their belongings during the lease term.
8. Familiarize Yourself With Landlord-Tenant Laws
Ensure compliance with local landlord-tenant and Fair Housing laws to avoid legal issues. Stay informed about changes that affect the rental industry and adhere to regulations regarding security deposits, tenant screening, and evictions. By following the law, you can protect your business and avoid potential lawsuits.
9. Invest in Landlord Software to Manage Your Rental
Managing a rental property can be a significant responsibility, especially without a property manager. Consider using a property management software platform like Avail to streamline the rental process. Avail offers custom rental applications, lawyer-reviewed lease agreements, and online rent collection, all in one convenient place.
Save Time and Money With Avail
To succeed in rental property investing, it's crucial to have a plan, understand local ordinances, and establish efficient processes. Visit Realtor.com® to find available properties or connect with trusted Realtors. Sign up for a free Avail account to manage your first rental property and future tenants effectively.
Start your journey as a successful landlord today!
