Buying real estate property has become a trending form of investment in the United States. The stability of the housing market since the market crash has made the real estate investing industry more lucrative and attractive for investors looking to make money through different investment strategies. The most common way to achieve a form of immediate return on investment in real estate is through purchasing rental properties. But for first time real estate investors, the question most frequently asked is how to go about buying a house for rental purposes. The question is right on point because buying a property for you is way different from purchasing one to be used as a rental property for years to come.
Answering the question how to go about buying a house for rental purposes requires following a series of guidelines that should prevent making naive mistakes when investing in investment properties. Since investing in a rental property is different from purchasing a residential property – i.e., a home – for yourself, then a certain level of knowledge in the real estate industry is needed. Rental properties are not too complex to manage; on the contrary, after an edgy start most rental property owners become naturals at it. However, investing in a rental property will require the investors to have certain personal qualities, because after all it is an investment that requires managerial, social, and financial savvy.
How to Go About Buying a House for Rental Purposes?
Set Expectations and Planning
Some real estate investors automatically think that rushing the purpose of a rental property is considered acceptable because they won’t be living there. Many think that the property they will purchase doesn’t have to live up to their own standards. This is a misconception about how to go about buying a house for rental purposes. An investor purchases a real estate property for financial return mostly, so the very first step would be setting goals and expectations that need to be achieved in the short and long term.
The second step would be deciding how much you are willing and able to invest in the rental property, and if you will be taking a loan to finance it. Financials like these help real estate investors to narrow down their search for investment properties within their price range and gives them a clearer idea of the amount of loan needed to complete the purchase.
The third step is deciding in which neighborhood you want to invest. Rental properties are all about demand from tenants, so having an income property in a more attractive location pushes the rent price up due to high demand. If you are looking for a guaranteed successful rental property, then paying a little bit extra for a better location is worth it.
Get Pre-Approved for a Mortgage
One of the first ways on how to go about buying a house is getting pre-approved for a mortgage through a bank or another financing entity. This is a very important step if you are planning to pay for the rental property by getting a loan. The real estate market is very competitive, and buyers are usually fighting off each other to win bids for the best properties available. This is why getting pre-approved for a mortgage gives you access to the needed funds in a short period of time. If you have to wait to get approved for a loan, you might miss out on the best investment properties to other real estate investors.
Getting pre-approved for a mortgage also allows you to correctly calculate future finances in terms of interest to be paid and to compare them with expected rental income that can cover expenses.
Hire a Real Estate Agent
If you are new to the real estate industry, then how to go about buying a house is not a simple task. Searching for the best properties requires extensive search and time that many real estate investors simply can’t do. While it might be easy to find properties for sale, it takes a real estate expert to spot bargains that could save you some extra bucks. This is where real estate agents come in. They are experts in finding their clients the best possible property for the budget they have. They are also obligated to serve the best interest of their client without putting their financial interests first.
Being around a real estate agent at the beginning of your rental property investment career is useful in so many ways. A real estate agent can practically be a mentor in a way for you to understand how the real estate market works, how to spot the best investment properties for sale, and how to negotiate with property sellers.
Use Mashvisor’s Rental Property Calculator
The function of Mashvisor’s interactive investment property calculator is to do exactly as it promises – it’s the innovative way of how to go about buying a house. The real estate investing tool, which can be accessed by anyone, gives precise real estate market analysis through data collection. Using real estate analytics from the market and from available data, the investment property calculator will give the real estate investor an insight on the estimated profits and costs of neighborhoods and properties for both traditional and Airbnb rentals.
The analysis will initially provide real estate investors with rental strategy comparisons for both Airbnb and traditional rentals. The comparison criteria include rental income (which can be edited), monthly expenses, cash flow, CoC return, cap rate, and occupancy rate. This comparison makes it easier for real estate investors to understand why and how a certain rental strategy is better for that investment property by showing the numbers.
The second part to look at is the financing/mortgage section of the rental property calculator. That section allows the user to choose the financing method for that property, either mortgage or cash. Selecting the mortgage option allows the real estate investor to adjust the down payment, the loan amount, the loan type, and the interest rate, which gives real estate investors a better understanding of future cash flow depending on the mortgage details.
The best way to get integrated on how to go about buying a house for rental purposes is through preparation. Being prepared for what to expect from owning a rental property places you on a path to easy success. Having realistic targets, working hard, constantly improving, and trying different investment strategies and ways is how success is forged in the real estate market.