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How To Buy A Rental Property for Passive Income

Posted by Susanna Haynie on March 25, 2014
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How to buy a rental home

After reading the primer “Are You Ready To Invest In A Rental Property?” do you feel that you are ready to conquer the world of real estate investments?

  • checkYou know which kind of real investment you want: a rental
  • checkYou know now what KIND of rental you are looking for
  • checkYou are financially prepared and ready to jump into this kind of investment adventure
  • checkYou made a decision on WHERE you’d like to buy

What’s next? It’s time to get out and ‘learn’ your town and dive into your research:

1. Ask your real estate professional who you chose as part of your team (call me: 719-321-0800 or email me susanna@co-regroup.com) to provide you with information on one or more areas that you are considering to invest in. Look at the past 12 months of sales as well as canceled, expired and withdrawn listings, listings that are under contract and currently active. To learn about rental prices in this area, active rental and leased rentals can also be provided by your Realtor. Take a look at how long it took for homes to rent. Visit active rental listings and compare condition with rents asked. Your research will give you the confidence that your money is well spent and the calculated return on investment will become a reality.

2. Once you have identified a property that you would like to purchase and keep as a rental – it’s time to do more detailed research: Due diligence. You will have to get to know the house you are purchasing and all that pertains to it. You might want to start with the

  • property’s recorded title information which your title company will provide to you
  • in order to find unrecorded title information you can talk to neighbors and ask for any agreements with the current owner in regards to any unrecorded encumbrances or easements that they might be aware of. You can walk the property to maybe find any indicators for such unrecorded facts. In older areas such as Old Colorado City, which was established around the turn of the last century, an ILC or an (unfortunately more expensive) survey might be advisable to make sure that the correct property lines are established.
  • inspect the physical condition of the home. Of course, you may depend on your own expertise when you investigate the home or contract home inspectors to assist you in your research. Consider other inspections such as a  termite inspection, roof inspection, mold inspection, radon inspections; you might even engage a structural engineer. If you feel that the property needs repair or updating, get estimates, from – ideally 3 licensed contractors.
  • The seller should provide you with income statements, leases, tenant estoppels, insurance claims and documents, income and expense logs and any other documents that pertain to renting agreements and to the home in general.
  • Explore the neighborhood, again talking to the neighbors is a great way to find out any kind of information about the house and its current renters that you might take over and the neighborhood. Driving the area at night is also helpful.

3. With the knowledge acquired about the property you are about to purchas,e run your numbers again and see if they still agree with your ROI needs. To compare several properties you can use a Gross Rental Multiplier.

Looking at the historic facts and numbers, the real estate market still offers decent prices and a bargains here or there. If you are looking to hold, the home will pay for itself over the long run.

Are you looking for a stream of passive income or would like to know more about real estate investing, please call/text me at 719-321-0800.