How to Prepare to Buy a Rental Property
Owning and managing property as a means of income is a great step towards diversifying your cash flow and generating wealth. The exciting first thoughts of passive income, however, are usually followed by the reservations of navigating the risks and procedures of acquiring real estate. Understanding the realities associated with this pursuit highlight the importance of researching what it takes to purchase your first residential property.
When educating yourself on real estate, gauging the surroundings of your residence is just as necessary as the residence itself. You first want to learn what types of properties you would like to own and the markets trends in the area that would benefit your business strategy. Some trends to pay attention to:
Also, consulting seasoned property managers and owners can guide you towards realistic expectations of how to gain and maintain real estate. Property managers provide context for the day-to-day operations of conducting the business, assisting tenants, and logging information. Property owners understand the structure and nature of the business from a more detached perspective. There is value in listening to their experiences and familiarizing yourself with the language of the trade. You should also aim to learn how to build your own connections, avoid expensive mistakes, and make tough decisions when the market is slow.
It is vital that you understand the local landlord-tenant laws when entering this business. Staying up to date on the rules of regulation like managing security deposits and handling evictions or complying with the Fair Housing Act and Fair Credit Reporting Act can help to avoid litigation in the long run. A great preemptive measure when looking for a property is consulting with a real estate attorney to learn the basics of how to run a law-abiding business.
Finances & Funds
Taking steps to reduce your own debt, maintain a good credit score, and have a steady stream of income outside of this endeavor makes you a favorable prospect for lenders and investors if you choose to take either route. From there, get to know the start-up and long-term costs of such an investment. They are key to having a clear understanding of your expected Return on Investment, an estimate that is both appealing to lenders and helpful in upkeeping operating costs of the business.
As you build your financial plan for property investment, ensure that your own financial health does not hinder you.
To start, there is the cost of the building. It is expected that, with the help of investors, you make a down payment of at least 20% towards the purchase. That paired with the startup costs you will need to make during or immediately after the building is secured can amount to a value far beyond what you initially may have anticipated. Additionally, many of these costs typically recur throughout the course of your ownership. Some examples are:
Though this type of venture may seem intimidating at first, the most important resource throughout all of this is time. Take it to familiarize yourself with the ins and outs of this business, and don’t be afraid to ask for help along the way.
Working with an experienced legal team like the Onyx Group helps you protect your assets and livelihood. We offer support for eviction cases, vicarious liability, and other areas of property law you may face. Contact us today for a free consultation and to learn how we can help you.