Purchase with a Plan - Investing in real estate differs depending on the type and location of the property you are buying. Vacation rentals are enticing on many levels but the seasonality of the property can dramatically effect your income. When purchasing a rental you will need to decide which is right for you - commercial or residential - multiple units or a single unit. Be sure to research the local rental market so you know what you can realistically expect for rent and overall cash flow. Also, being pre-approved for an investment loan and ensuring your own finances are in order will allow you to determine if you have enough capital to proceed with the purchase. Once the type, size and investment amount is determined, it is beneficial to communicate this information with your realtor to help you find the perfect property.
Understand Your Investment
It is important to understand the condition of the building and surrounding property you intend to purchase. Unless you are particularly knowledgeable about construction, always make offers for the purchase contingent upon professional inspections. Knowing the exact condition of the roof, foundation, plumbing, electrical, floors, appliances and other aspects of the property provides a much better sense of what you will need to repair, maintain, or upgrade for your tenants. In turn, this allows you to better understand the "bottom line" of your investment. As the owner, you have a vested interest in ensuring that the investment stays in good condition and you should have a budget for repairs and maintenance to ensure that you are able to keep the property in top shape.
Evaluate Your Options
As you look at properties, consider your options - you have many. From location and style to type of rental and number of units, each decisions will open new doors. Is this a long or short term investment? Do you have a sense of what the future holds for the neighborhood? A good location is one of the best ways to ensure the steady flow of rental income. Can the property be changed or altered? Can you add onto the property, build a garage, change the parking?? Are there regulations regarding subdividing or renovating the home? Even if you have no intention of changing the property, knowing your limitations and restrictions before purchasing is a good idea!
Get Insurance and Assurance
Legal documents are extremely important - be sure you have accurate and complete rental agreements between you and your tenants and service agreements between you and concerned parties. Clarify rental due dates, penalties for late payments, ramifications for lack of payment, financial responsibility for "other expenses" and what amenities will be available to tenants. A real estate lawyer is an invaluable asset and highly recommended. Having accurate and complete documents will give you peace of mind and provide legal recourse should you need it.
Proper insurance is also very important. You will need insurance on the structure itself as well as liability insurance, in case someone is injured while on the premises. In some locations additional flood, earthquake, and storm related coverage is a good idea to protect your investment. Since you are responsible for the mortgage, you will want to have the right types of insurance with sufficient coverage to protect your investment.
Remember: You're in Business
Buying a rental property is essentially going into business. Like all businesses where significant money will be changing hands, an accountant who is well versed in real estate investing and tax implication will be valuable. You will be collecting rent and incurring expenses for repairs and services. Tax issues become more complex and a professional will aid you in maximizing your returns on your purchase. Many times, these professionals will pay for themselves in the money they are able to save for you.
Whether this is your first rental property or you are a seasoned veteran, your realtor is among one of your best business contacts. Having a straightforward relationship where you present your needs and expectations up front enables you to get the help you need in making that critical step of executing the purchase. Additionally, realtors have a wealth of knowledge and resources that they are willing to share from handymen to potential tenants.
Follow these steps as you go into your new venture and you will start strong. The Fran Campbell Team would love the opportunity to work with you to find your perfect property and help you achieve your goal of becoming a rental property owner!!
Contact Fran Campbell Team at RE/MAX Lake of the Ozarks for all your real estate needs.
Fran Campbell Team
Lake of the Ozarks BEST Realtor
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