Is there a best way to buy a house and rent it out? Whether you’re buying a house to rent out for the first time, or buying a second property to rent out, this is the blog to read for a thorough step-by-step description that will help you in buying a house and renting it out.
To Begin With: Is Buying a House to Rent Out a Good Real Estate Investment?
Simply said: yes! Buying a rental property is a secure investment that will help you make steady (and often passive) income. It’s also a great way to pay off your mortgage and get tax benefits in real estate.
Learn More: Is Investing in Rental Properties the Ultimate Way to Succeed in Real Estate Investing?
The 8 Most Important Steps That You Can’t Skip
#1 Research
Does one ever do anything without first researching? We research things as simple as good restaurants in an area. So how can you not research when investing in real estate?
What should you search for exactly?
- Location
- Property prices
- Real estate trends
- Real estate laws and regulations
- Economy, job growth, demographics
It all matters. Real estate depends on all of the above factors. So make sure to run a general search on the US housing market, and an in-depth one for the specific city or state you’ve chosen.
#2 Figure Out the Details of Your Real Estate Investment Strategy
Are you renting to long term tenants, i.e. traditionally, or are you buying a house to rent out on Airbnb? Another question to ask is are you going to invest in-state or out of state?
Choosing your strategy will determine where you look (location), what type of investment property you should buy, where to go in your research, and what analysis indicators to focus on (like expected rental income). This will help you in the next steps for buying a house to rent out.
#3 Choose the Right Location
We cannot stress this enough: knowing where to buy a house to rent out is everything. If you want to achieve positive cash flow and make money in real estate when you buy and rent out a house, you need to look in a good location.
What does a “good” location look like in real estate? A good location generally has the following:
- High demand for rental properties
- Positive cash flow
- Lenient laws and regulations (especially if you’re buying a house to rent out on Airbnb)
- Low price to rent ratio
- Safety
- Good school district
- (For Airbnb) Proximity to tourist attractions, central location
It takes good research skills to find a location with the above factors when buying a house to rent out. But the challenge pays off; rental properties in locations with the above factors will help you achieve consistent and high cash flow.
Related: Location Location Location: What Makes for the Best Place to Invest in Real Estate
#4 Find a Rental Property
Settling on a location and a property go hand in hand in real estate. After you’ve decided on a location, it’s time to dig a little deeper and look for a profitable rental property. Today, researching for investment properties has become much easier, especially with the AI technologies available to real estate investors. Mashvisor is one technology that makes finding a rental property easier. Our rental property calculator helps investors find information on expected rental income, CoC return, cap rate, rental rate, and comps for different properties in different locations.
This takes us to the next step:
#5 Conduct Investment Property Analysis
The next step that you absolutely cannot miss when buying a house and renting it out is conducting investment property analysis. Once you’ve found a property (or a few) that you think may be a good real estate investment, it’s time for more thorough analysis. With investment property analysis, you compare different investment properties, along with data attached to these properties (see above), to compare and estimate how they will do once rented out. In this way, you will be sure to find the best investment property in the market of your choice.
#6 Sort Out Your Finances
In comes the tricky part. To handle your finances, you need to pin down your costs, expenses, rental income, and match them all together. Make sure to account for all costs and expenses, including mortgage payments. You will most likely take out a mortgage for buying a house to rent out. And sorting out your expenses early on will help you avoid the foreclosure process in the future.
Did you check all the steps off your list? Now you’re ready to make an offer!
#7: Negotiate Before Buying a House to Rent Out:
Remember to negotiate. The seller’s asking price is usually not the price buyers end up paying. There’s definitely room for negotiation. You can definitely get the real estate property for a few thousand less with the right negotiation tips.
Related: 8 Negotiation Tips for Buying an Investment Property
#8 Market Your Rental Property
Once you’ve figured out a real estate strategy and purchased the investment property, you need to market accordingly. Marketing a rental property is a crucial step in real estate; it’ll help you create a pool of tenants to choose from. And knowing how to find tenants doesn’t just stop there. You can’t just learn how to find tenants – you have to find the right one.
In terms of marketing your rental property,
If you’ve chosen traditional – you can market through your real estate agent, word of mouth through your real estate network, and your social media. You can also advertise for an open house to show the property to potential tenants.
If you’ve chosen Airbnb – the platform already exists, all you need to do is optimize your use of it. Upload the best quality photos you have of your rental property, leave a clear (cool) description, and aim to achieve positive Airbnb reviews.
To Sum Up…
Buying a house to rent out can be a hectic process, especially if you’re a beginner in real estate. But if you follow our steps to buying a rental property (8 steps to be exact!), your investing journey will be much smoother.
Next, Learn How to Rent Out a House for Positive Cash Flow.
