There are many reasons why anyone would consider investing in real estate. It’s not only a great way to secure financial independence, but it has also produced many of the world’s wealthiest people.
If by now you find yourself without a property investment, don’t give up just yet. Demand for rental properties is still strong in the US housing market. In addition, November and December are usually the best time of year to buy an investment property as prices and the competition drop. So, if you’re serious about finding a real estate investment opportunity, read this guide to learn how to buy a rental property before the end of 2018.
1) Work with a Real Estate Agent
Whether you’re a beginner real estate investor or an experienced one looking to grow your investment portfolio through buying another income property, you’ll need the help of a real estate agent. An agent is especially needed if you’re trying to get your hands on a property as quickly as possible before the year-end. Real estate agents are professional individuals who will make the purchase process smoother for property buyers. Typically, an experienced buyer’s agent will assist in:
- Finding a property for sale that best meets your needs and what you’re looking for
- Providing an accurate summation of the property’s worth
- Submitting and negotiating the offer with the seller/seller’s agent on your behalf
- Having the contract and other documents reviewed
- Answering your questions on how to buy a rental property and providing advice
2) Figure Out the Finances
Financing might be the trickiest part of buying a property, so getting your finances ready should be on the top of your to-do list as a real estate investor. If you’re buying your first investment property, then you’re most likely going to take a mortgage loan to close the deal. In this case, you need to get a pre-approval letter. To get approved, lenders require that you have a:
- Good credit score (660 or higher)
- Good debt-to-income ratio (36% or lower)
- A 6-month cash reserve for each property you own and wish to own (primary residence and rental properties)
- 20-25% of the price of the investment property as down payment
Make sure you’ve got everything covered before you apply for a mortgage loan in order to guarantee getting approved for your first income property. For more details, I suggest reading this blog: Rental Property Mortgage: The Ultimate Guide to Getting Approved.
3) Invest in the Right Location
Every guide out there aiming to teach you how to buy a rental property will mention the importance of buying and investing in the right location. Some would advise beginners to invest in their local housing market so they can check on the property. This is not a bad idea IF you’re lucky enough to live in a housing market where the rental demand is high and the property can yield a good return on investment. It’s far more important to buy quality investment properties rather than focus on buying local. In fact, real estate experts often say “live where you want, invest where it makes sense.”
A real estate investor should even consider buying an income property out-of-state if it promises profitable investment opportunities. The best places to invest in real estate typically have three things in common – 1) healthy economy, 2) growing job market, and 3) increasing population. Of course, there are other factors that make a certain location good for real estate investing like high occupancy rates, low crime rates, property prices, rental rates, etc. All of these factors must be taken into account to determine whether to invest locally or out-of-state.
At Mashvisor, we help real estate investors in their real estate market analysis to find the best properties in the best locations. To learn more about how we will help you make faster and smarter real estate investment decisions, click here.
4) Start House Hunting
The next step in how to buy a rental property is to actually find a rental. Since you only have a few months left until the end of the year, you’ll want to conduct your property search and find a profitable property fast. Traditionally, this would take you about 3 months to complete. With an online Property Finder Tool, on the other hand, it only takes minutes!
With our Property Finder, all a real estate investor has to do is use different filters to set his/her search criteria. You’ll get to determine which city you wish to invest in, your budget, rental strategy (traditional or Airbnb), type of rental property, and more! Our tool will then show you lists of the best properties that meet your criteria AND an estimate of their cash on cash return.
Do you have a free Mashvisor account? Use our Property Finder to find lucrative investment properties that match your criteria in a matter of minutes!
5) Do an Investment Property Analysis
Even though you’re trying to get your hands on an income property quickly before the end of the year, that shouldn’t mean buying just any property. Owning a rental property is not the same as owning a primary residence, and being a landlord is definitely different than being a homeowner. It’s a business, so you need to treat it like one! Thus, don’t make an investment decision on a house you’d like to live in and assume it’s going to make you money. Instead, your decision has to make financial sense, meaning you have to analyze your income property and see what the numbers are telling you.
When conducting an investment property analysis, calculate its cap rate, cash on cash return, potential rental income, expenses, and cash flow. All of these numbers and ratios will show you what return on investment you can expect from this income property. That’s a lot of numbers, right? Don’t worry, with an investment property calculator, you can rest assured that you’ll get accurate results more efficiently. To learn more about this tool, read this: Investment Property Calculator for Analyzing Real Estate Investments.
The Bottom Line
You might think it’s unrealistic to do all of this a few months before the end of the year, but you’ve already started by learning how to buy a rental property. Now, you need to make finding and buying an investment property by the beginning of next year your priority! Moreover, make sure to have a real estate investing business plan that outlines your goals, financial plan, and investment strategy to guide you through every step and keep you focused on achieving your ultimate goal of buying an income property.
To find the best rental property in your city and neighborhood of choice, start your 14-day free trial with Mashvisor now.