If you want to invest in real estate to secure your future or plan for your retirement, it is important to make the right decisions during the process. Here are two steps to help make sure your rental property investment is successful and brings you a return on your investment.
Hire a Real Estate Agent
The first step to search for a good investment rental property is to hire one of your most important team members: a real estate agent. Your real estate agent will be working for you and have your interests as their priority. And the best part of hiring a real estate agent is you don't have to pay them. Your realtor's commission will be paid for by the property seller during the closing process.
Be sure you interview several real estate agents before you select one to work and sign a contract with, as all real estate agents are not equal in their knowledge and experience. Real estate agents all have to complete the appropriate course work and pass a state licensing exam, but the experience they gain beyond obtaining their real estate license is what makes them better than all the rest and a good team member for your real estate purchase process.
For this reason, it can be helpful to find a real estate agent that works with investors and is an investor. This gives them the experience and knowledge they will need to help you weed out the bad real estate investment properties and look for the type of properties that will bring you a positive cash flow. They can help you analyze properties for cash flow and explain how to use the one percent rule, which is to look for properties that will bring in a monthly rent at least one percent of the home's purchase price. For example, if you buy a home for $60,000, you should be able to rent it out for at least $600 each month to make money on the investment.
Determine Your Financing
The next step to buying a real estate investment, whether it is a single family home or a multi-unit property, is to figure out what your financing options are. One of the most commonly-considered financing options is bank financing. Talk to a mortgage broker about getting pre-qualified for bank financing, which allows you to know how much money the bank is willing to lend you to buy a property.
If you don't have good enough credit to qualify for traditional bank financing, you can still buy real estate. This may require you to do a bit more work, but with the help of your real estate agent, you can find and finance the right property. Many sellers may be willing to act as the bank in the sales transaction and accept payments from you over time.
Seller financing benefits both you and the seller. You can still buy real estate even though a bank won't lend to you, and the seller will earn interest over the time of the loan. The seller is also protected in the financing agreement if you were to default on the payments, as they have the right to foreclose on the agreement and take back the property.
A lease option is another way for you to buy a property without bank financing. In a lease option, you pay a non-refundable deposit to the seller as an option consideration, then make monthly rent payments, which can go toward the property's purchase price. In this situation, as the buyer in a lease option, you have the right to buy the property, but you are not obligated to buy it. For example, if the property's value drops considerably in a few years from an economic downturn, and the rental rates in the area also fall, you can decide to walk away from the option to buy the property. Because the rent rates would be down along with the property's value, it would no longer be a good investment as you would not be able to make money on the property.
Use these steps to help you buying a real estate investment.