Buying your first rental isn’t a walk in the park, but it should be an exciting experience! When investing in real estate, you are able to increase long-term financial security. As the nation’s leader in rental loans, we’ve worked with investors of all sizes and have seen all sorts of scenarios and with that experience, we have compiled a short list of things you should consider when investing in a rental property.
Where to Start?
Are you going to be a permanent rental investor, transitional rental investor or a vacation rental investor? You could very well have a variety of rentals when you have built a portfolio, but it’s extremely important to decide what potential outcome you’re looking for when buying a rental property.
Permanent rental investors intend to keep the property long-term and may even pass it down generations while a transitional rental investor will purchase a property that’s priced low with the intention of later selling the property for a profit. A vacation rental on the other hand is typically popular, as many rental property owners fall into being an investor by simply purchasing a secondary vacation home that ends up being a short-term rental on popular platforms like AirBnB and HomeAway.
Now if you’re deciding between holding onto a rental property or finding a flip-worthy property, you have additional factors to consider. Both types of real estate investing can be extremely profitable with the right strategy and team. You may want to check out our Investor Resources to help you decide your strategy before making any moves. Are you going to be a permanent rental investor, transitional rental investor or a vacation rental investor? You could very well have a variety of rentals when you have built a portfolio, but it’s extremely important to decide what potential outcome you’re looking for when buying a rental property.
The Locale and Region
Although many investors choose to invest locally and sometimes near their primary residence and like mentioned earlier, many fall into owning rentals by simply purchasing their own second/vacation home and later using it as a rental. In those cases, you are most likely already familiar with the area.
It’s important you know the locale and region so you are prepared for anything that may occur, including natural disasters. Today, investors are acquiring properties across the nation, even in places they’ve never lived themselves. There are “best investment spots” lists available to you with a quick search on Google or you can check out our 2020 list here.
Additional questions you may ask yourself:
- Is the state landlord friendly?
- Is renting popular in this city?
- What's the walkability like?
These types of questions will help you determine how easy renting out your subject property will be.
Landlord Expenses/Down payment
Not only do you need a down payment, but don’t forget to consider what will need to be done to the subject property before it is rent-ready. At Visio Lending, we fund rent-ready properties so our investors are able to rent out their properties with no hassles and receive a steady cash-flow. You should first know of the obligated landlord expenses and then decide from there if you have room to do any cosmetic changes to a property if need be.
Now back to the down payment part- This is where an investor is defined apart from a consumer. With consumer mortgages, you often can go in with little as 3% down payment. For an investment property, you are looking at loan-to-value (LTV) and this is when shopping for the right lender comes into play.
- Finding the Right Lender for You
Every lender with a rental loan program will not be the same, meaning it's not apples to apples, it's really apples or oranges. When considering which lender to choose, often many investors consider the LTV (loan-to-value is the ratio of a loan the value of a property purchased, our maximum LTV is 70% for refinances and 75% for purchases. However, the lower your LTV, the better your interest rate) and how high of an LTV you can achieve. This is just one of the several things investors vet lenders for.
Check out our 5 Questions You Should Ask When Shopping for a Lender
Last, but not least --Are You Comfortable Being a Landlord?
It’s one thing to be the landlord and another to be a landlord with a property management company on hand. As a landlord you are responsible for ultimately everything and you get to make the executive decision of when hiring a property management company is necessary.
Some questions you may want to ask before hiring a property management company are:
- Is the property close enough for me to access when need be?
- Are there too many properties to manage myself?
- Do I have the time and hands-on experience?
You can also check out our Landlording Investor Resources for more insight on being a landlord.