3 Things to Consider Before Buying a Home for Rentals

Purchasing a home means investing in a valuable asset that will likely appreciate over time. When you’re using it as a rental property, you’ll have the added bonus of bringing in passive income (plus a cheap place to stay whenever it’s time for your next vacation). To set yourself up for long-term financial success, keep reading.

We’re going to let you in on a few things to consider before buying a rental property.

#1 – You Need a Location They’ll Love

If you’ve ever heard the saying “location, location, location,” you know how important it is to purchase a home in the right neighborhood. When you’re purchasing a rental, the old adage is truer than ever.

Here’s how your rental’s location can have an impact on your financial return:

• Potential tenants – If you’re buying a rental in a college town, your tenants are going to look a lot different (and have a much different monthly budget) than if you purchase in a family-friendly suburb.
• Monthly rental income – Purchasing an apartment in a big city will usually command higher rental prices than a house in the country. However, it will also cost more to purchase in some areas, so you’ll need to crunch some numbers (more on that later).
• Future market value – Your rental’s location can help determine the kind of return on investment (ROI) you’re likely to see once you eventually sell.

#2 – Be Prepared to Break Out the Calculator

Purchasing a rental property is a major financial investment, meaning it’s crucial to do the math before you sign on the dotted line. Not only do you want to be able to comfortably afford your purchase, but you also want to derive meaningful income from it. Be sure to factor these things into your financial equation:

• Purchase price
• Monthly mortgage payment
• Utilities, including heat and electricity
• Maintenance costs
• Management company
• Potential loss from ongoing vacancies

We wish we could provide an exhaustive list, but buying a rental means doing some serious homework. So throw on your coziest sweatpants and start diving into the exciting world of property taxes, monthly utility costs, and mortgage loans—everything from Colorado VA loans to New Hampshire FHA mortgages.

Pro tip: If the mere thought of these financial matters makes your head spin, we recommend setting up an appointment with your bank. No matter where you are in your journey, your bank can provide valuable information about your financial options.

#3 – You Need a Great Management Company

A common misconception for many people purchasing a rental is that they can do it all on their own—no management company required!

Cut out the unnecessary stress right out the gate and let the professionals handle the logistics; this is an investment that will pay off in the long run. Not only will a good management company deal with the things you don’t want to (sorry, but pipes won’t wait to burst until it’s a convenient time for you), but they’ll also have access to tools and resources you don’t.

Management companies can help market your rental, secure reliable tenants, and deal with the legal aspects of leasing. Plus, you’ll sleep better at night knowing you have a reliable team by your side to help deal with the unexpected elements of renting a property.

You’re Ready to Be a Landlord

When your first tenants sign the lease, you’re going to be so happy you put in the extra effort to purchase the perfect rental home.

Owning a rental property is a financial asset for both your current and future self, and we feel confident that you’re going to be an amazing landlord.