HOW TO FIND A GOOD INVESTMENT PROPERTY
The idea of owning rental real estate seems to be gaining popularity as investors tire of the swoops and swoons of the stock market. Not everyone has what it takes to be a landlord. But those who do may find rentals to be a good way to build wealth.
Once you've made the decision to buy rental property, your real work begins. Finding a profitable rental property usually takes time, connections and plenty of research.
Here's what you need to know to get started:
Know your time horizon
As with any other investment, you should have a good idea how long you plan to own a rental property before you buy it.
The longer you plan to own the property, the more you'll probably need to invest in maintenance, repairs and improvements.
Get your finances in shape
The better your credit, and the less credit card and other consumer debt you have, the better your prospects for getting a decent loan.
Landlords say it also pays to have a substantial cash reserve left over after buying a property.
This can help pay for unexpected repairs and vacancies. Although there are few rules of thumb, setting aside at least one month's rent for each unit is a good start.
You also should make sure you can save enough for retirement and other goals before investing in rental real estate. While rental income can supplement your retirement kitty, most people shouldn't count on it to replace other investments or allow themselves to be entirely exposed to the whims of the local real estate market. Rents and property values can fall as well as rise, and those who are adequately diversified with investments in stocks, bonds and cash will be better able to endure the bad times as well as the good.
Avoid overpaying
The rental real estate market is generally tougher on investors who overpay than on homeowners who do the same thing, several landlords said. While a home is often an emotional purchase, which can lead to "I must have it!" offers and bidding wars, most landlords look strictly at the numbers to see if their investments will pay off.