Considering buying a home to rent out for an investment? Here are some of the differences to keep in mind when you’re buying investment property compared to buying a primary residence. This is a condensed version of our investment purchase buyer supplement, if you’d like the whole document please contact us and let us know!
- Finances. Are you buying with cash or do you need to work with a lender? If you are financing your purchase, get pre-approved for a loan and decide on your budget – keep in mind that interest rates for investment purchases are higher, and down payment requirements are larger.
- Insurance. Talk with your insurance company – get some ideas on rates for investment properties
- Property Management. Look into property management companies (recommendations here) – will you be hiring someone to manage the home or will you be taking care of the details yourself? Typical property managers charge 1/2 month’s rent to find and place a renter, and 5-10% of the rent as a monthly maintenance fee. A property management company will help with the following items, if you choose to manage your rentals yourself, know how you’ll handle the following:
- Finding a renter, arranging showings, determining rent
- Run credit/background checks, check references
- Execute the lease document, obtain signatures and deposits
- Collect rent, manage maintenance, manage emergency situations 24/7
- Taxes. Talk with your CPA and know ahead of time what expenses can be written off on your taxes.
- Consider forming an LLC. Many investors buy properties in their LLC’s name, some transfer the deed of their home to their LLC after closing. More info here.
- Condition. Let your agent know if you want to purchase a home that a renter could move right in to, or if you are ok with doing some cosmetic work.
- Amenities. What amenities should your home have to be attractive to renters? Stainless steel appliances, laundry rooms, access to a pool, and off-street parking are some important features. More popular rental home amenities here.
- Buy smart. The point of owning investment property is to make a good financial investment. Make sure you’re in a good school district, check on crime rates, make sure you’re buying at a good price, etc. Other considerations here.
- Location, Location, Location! Decide what areas you would consider purchasing in and start working with your agent to view homes.
Making an Offer
- Rules/Regs. Make sure that the home you are considering purchasing does not have restrictions against renting.
- Inspections. Make sure you do a thorough inspection and address any safety/health concerns before allowing a renter to move in.
- Advertising. If the home you are buying is ready immediately for a renter, you may want to ask the seller if you can advertise the property for rent after the inspections are negotiated.