The foundation of real estate lies in a rental property. That’s why one of the most fundamental topics in real estate investing, especially for beginners, is how to buy a rental property. There are slight differences when buying a home versus when buying a rental property, but the main idea still stands. So, without further ado, here are five steps to buying a house for renting out.
Related: The Difference Between Buying an Investment Property and Buying a Home
Step 1 – Research and Plan
There’s no need to be an expert on real estate to get involved in it. However, you do need to be informed and have a plan. That’s why the first of the steps to buying a house for renting out is to research and plan. Set an investment plan for yourself – what exactly are you trying to achieve? Are you aiming for an active or a passive investment? How much rental income are you reaching for? How much are you willing to spend on the investment property? These are some great guidelines for planning a rental property purchase.
You also need to do your homework. Once you find out what kind of investment property you’re interested in, it’s time to find a suitable location. This leads to more questions and planning. Do you want to invest in-state or out of state? Which areas are the most suitable near you? How do the average rents in the area fare out? Are there any legal restrictions for short-term rentals? To find answers to these real estate questions, you’ll need to do some research.
Related: Location, Location, Location – Is Location Really All in Real Estate Investing?
Planning and researching are part of a cycle, even once you make a move to purchase, you will come back to plan and research. Research and plan your goals and see if any changes will be needed along the way.
Step 2 – Get Your Money Ready
Once your main plan is all set, it’s time to move on to the second of the steps to buying a house for investing. Arranging your finances is key to buying a rental property. There are generally two routes to buying a property: through only cash or through the help of a mortgage. Which option should you choose? If you’re somehow able to have a few hundred thousand dollars in cash, sure, go ahead and invest with cash. If not, and most likely not, using a mortgage is your best bet. Which method is better? That question has sparked an interesting debate in all real estate investing circles. We’ve covered it before here.
Related: All You Need to Know About a Mortgage for Rental Property
Assuming you’re going with a mortgage, we can start our discussion. To qualify for a mortgage, you’ll need to have good credit. While it is possible to invest with not-so-good credit, the process becomes much less tiresome with good credit. Be sure to take some time to establish credit. You’re also going to need some cash reserves. Loan lenders will typically require real estate investors to have a few months’ worth of mortgage payments in their bank account. To get more detailed with financing steps to buying a house, be sure to visit your bank.
Step 3 – Search for a Property
The next of the steps to buying a house for renting out is to search for an investment property. There are tons of ways to find rental properties. The most common way is to head over to the Internet. Websites like Trulia, Zillow, and Realtor are great sites to find real estate properties. And of course, there’s Mashvisor, which allows you to find the rental property that suits your goals in under 15 minutes.
Finding investment properties online will serve you well. Still, you should never underestimate the power of the word of mouth. Hearing about real estate properties is another great way to find investment opportunities. Finding rental properties through word of mouth and newspaper advertisements can help you find off market properties. These are properties that have not been added to the MLS for any reason. Off market properties can give you an advantage, but if you’re still beginning, try to stick to MLS properties.
Step 4 – Let the Numbers Work
Before you take the actual steps to buying a house for renting out, make sure the potential rental property you’re interested in is a good investment opportunity. You can do this by using an investment property calculator. Once again, Mashvisor comes to the rescue. Mashvisor’s rental property calculator allows you to find out important data on a real estate property, such as cash flow, cash-on-cash return, and cap rate by entering in the various costs of the property. This calculator is very interactive, allowing you to find out whether a certain investment opportunity is worth it.
Step 5 – Make an Offer
The last of the steps to buying a house is to make an offering and start the closing process. This means negotiations and a lot of paper work. If you have a real estate agent, the latter will be taken care of. Either way, you’ll have to be part of the former, negotiations. Don’t think you are a strong negotiator? Check out these tips that will surely help you.
If everything goes through, an inspection of the property will be conducted. If you find issues with the real estate property, you can try to re-negotiate will the seller or have the seller repair an issue. Along with an inspection come other closing costs. Some closing costs include attorney fees, inspection fees, and appraisal fees.
There, these are the five steps to buying a house for renting out. The process might be tiring at first, but in the end, it will pay off with your lucrative income property. Make sure you research thoroughly, get your finances straight, search properly, analyze accurately, and negotiate confidently.
For more on information concerning steps to buying a house, visit the Mashvisor blog. If you’re ready to put these steps to buying a house into action, start your trial with Mashvisor and search for a rental property that best suits your investment goals!