The returns found in real estate compared with other investment types continue to attract average adults to the housing market each year. While there are plenty of houses on sale, knowing exactly how to buy an investment property is one skill-set that is usually not taught free of charge. The following guide is meant for men and women who have no experience buying market rent ready investment homes in the U.S.
1. Search for Deals
The actual market value of a property is sometimes used as the selling price by a current property owner, broker or real estate agency. The actual price these owners will accept is usually different. Deals can be found when using web and offline resources. Comparing prices through Zillow.com and county clerk websites can help determine what is or is not a deal price.
2. Know Differences Between Properties
Investment homes are usually marketed in two forms. The first form is typically an "as is" property. This means that the home will need some type of upgrade or repair to make it rentable. THe second form is known as a turnkey home. These are houses that have been purchased, renovated and now marketed to rent. There can be a price difference between these two forms. Knowing which property is being marketed for sale is crucial.
3. Finance or Cash Sale
When a person is starting out, cash can be scarce to buy a home used for investment purposes. It is quite common for someone to seek financing for all or a portion of the sale price of a marketed home. While traditional lender financing is available, some home buyers are now using IRA or 401K accounts to buy a first home that will be used for earning passive income. A good non-recourse lender usually specializes in IRA real estate sales.
4. Consider Cap Rates
Investors use a specific formula to determine just how profitable a rental home can be based on the sale price and future rental income. The process of calculating a capitalization rate is easy and can be one important factor when scouting homes that will be used as rentals. A good cap rate ratio is between 9 and 12 percent for a standard rental home in a strong market.
5. Long-Term Leases = Profits
When buying a house that will be rented, a consistent tenant lease is what helps earn income annually. Investors who experience a lot of renters in a short period of time can struggle to keep profits consistent. Homes that can be rented for one to three years under each lease agreement can be more profitable for a real estate buyer. A longer lease term will always equal more rental income profits.
Warmer climates help rental homes to perform better compared to colder climates in the U.S. Property management of a home is what can help keep the home rented and in good shape during property ownership. JWB pioneers the buying and selling of turnkey properties in the Florida market. Investing solo or with a group of investors is a simple way to buy a first rental home. The PDF investing guide on this page explains how this process is conducted.