Everyone is hopping on the band wagon to purchase an investment property to earn money on. In this very active rental market…..why not? There are some things to consider to make the process easier and to earn your money quicker. First, finding a property to purchase that does not need a lot of renovation or work, You want to purchase and then rent ASAP. Also, you want to produce enough rent in ten months to cover all costs, including mortgage payments, taxes, and insurance. Your monthly rent should be at least 2% of the total purchase price of a property to make the most profit.
Location, location! Find a property where the rental prices are high and stable. Stay away from areas where rental listings are offering tenant concessions like first months’rent free and lower security deposits. I heard recently that home prices were higher within a 1 mile radius of Trader Joe’s. Surely the rentals would equate to this theory as well! According to everything I read regarding millennials and their rent habits, many favor “walkable” neighborhoods…… areas near cool shopping, restaurants and major thoroughfares.
If you purchase a property that has a tenant in place, tenancy rights exist. That tenant is there for the length of the lease unless there is a stoppage of rent payment in which case you can evict. With that said, even if the owner tells you that the tenant is great, don’t just trust that owner’s word as the truth. Run a background check and a credit check or if you hire a property management company they will do that for you as part of their service. Income verification is important as well. The tenant should have verified income of at least 3X the monthly rent amount. Make sure you ask to see pay stubs or a 1099.
And above all, (in my opinion) don’t rent to family or friends…..your income producing percentage will most likely take a hit!