How to Buy Rental Property

Buying rental properties can be a great way to build your wealth. However, as in most real estate investment, it is sometimes difficult to know if you've found a good deal - especially the first time. Here are some things to look for to be sure that rental is a great investment.


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    Find the best location. If traffic is heavier, rentals are easier to rent. A sign will often pull more response than an ad in the paper. If it is a nice location, it will usually rent faster. This is also true of places close to amenities.
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    Run the numbers. Get every last expense figured into your calculations, and be sure that you will have positive cash flow from the start. A few things to put in your calculations are mortgage payments, taxes, insurance, maintenance, management, utilities and reserves
    • The biggest mistake is to not budget enough for reserves. At least $100 per small unit per month for remodeling, vacancies and roof replacing needs to be kept and at least $200 dollars per month must be budgeted for large units per month.
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    Look in towns with high home prices, as this creates rental demand. What do people do when they can't afford to buy? They rent.
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    Avoid cedar-shake roofs, and wood-sided buildings. Look beyond current expenses to how much maintenance the building will need. Low maintenance means less headaches and more profits.
    • High maintenance building have many stories, stairs, elevators, flat roofs, basements. Large units have more maintenance than smaller units. And very small units like bachelor pads tend to have more vacancies so more time is spent cleaning, painting and showing. Medium sized units in a great location have the least maintenance and the least vacancies.
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    Ask to see the rental history. Note how long residents are staying on average, and how well they pay on time.
    • Buying rental properties with below-market rents means you get to raise rents. Raising rents means you immediately raise the value, because rental property values are based on income.
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    Find out if it complies with zoning and fire codes. Have it inspected, and ask local officials if there are any problems.
    • If property is less than 20 years old it's somewhat arbitrary. If you limit your search to newer buildings, you will be less likely to have building code and maintenance problems.
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    Consider "Owner/manager that is out of state". These properties are often the best deals, because it is tough to manage a property from far away. An out of state seller is often more concerned with a quick sale than a high price.
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    Determine if neighborhood is stable or improving. Stable is okay, but if you can buy in a neighborhood that is improving, you'll rent the units more easily, and therefore get automatic appreciation in value with time.


  • Properties with dirty exteriors are the easiest to increase in value with paint and plants.
  • Properties with broken fixtures, broken windows, peeling paint and lack of flowers are the easiest to spruce up.
  • Calculate the price per square foot (Price / Square feet) and go out and look at the 5 properties in an area with the lowest price per square foot. This prevents from overpaying for a property or having the bank turn you down for the property being over-priced.
  • Avoid properties that were in a fire or that have major structural damage when you are starting.
    • Removing an illegal unit can be easy and so can fixing a cracked foundation.

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Categories: Buying Property