Investing In Rental Property: Things To Consider

Depending on the current market value of homes in a given area, as well as the current house rental rates, investing in a rental property can allow for a lucrative profit. Of course, there are several factors that go into making investing in rental property worth the time, money and energy. Finding the right combination of factors ultimately turns an excellent profit for many real estate house rental investors.

The most important factor in investing in rental property is creating value in the home by finding a home in a good neighborhood that will allow the investor to still make a profit off of the home. With current market values this can be tricky, since often times finding a home that seems worthy to purchase and rent out means a mortgage, insurance and taxes will cost more than a renter is willing to pay. Of course this is all dependent on location, as many homes in middle America will rent for an average of $800-$1200 a month, while homes in places like California, Florida or even New York can have starting prices as high as $2500, all the way up to $6000 a month.

This means that one of the first steps a rental investor needs to take is to investigate the average rental prices in an area. An individual investor can easily do this by simply searching newspapers, websites and advertisements for rental homes in the area. An investor can also get together with their real estate agent who can set up a market analysis print out of rental homes in the area. Since most real estate agencies are connected to property management agencies as well, there is a good opportunity to just speak with a property manager and simply ask these property managers what the average rates are for rental homes.

After you have determined the average rental prices in the city or town you are considering investing, you will want to determine which part of town you can afford a mortgage, while still turning a profit through a rental property. This will mean considering not only the cost of the loan on the home, but also the property taxes and home owners insurance, so that you do not end up paying anything out of your own pocket. When determining which part of town it would be lucrative to invest in rental property, you will need to decide what type of renters you are willing to rent a home to in that town. This will have a huge impact on the type of home you want to purchase as well as the amount you can charge for rent.

Rental homes, condos and apartments are available in vacation rental areas, college towns, near military bases, and in lower income parts of town. Of course there are several others looking to rent homes, but you will want to consider where you will have a high traffic of renting possibilities, that way your home never stands for long without someone renting it out. From here, determine how much time and energy you want to put into cleaning and repairing the home in between renters. If you can afford to charge more and have a cleaning crew brought in between renters, then you may want to consider a vacation rental home in a busy beach town. If not, then stick with renting areas where the renters are likely to sign at least a year lease. Keep in mind that long-term renters are more likely to put more wear and tear on a home and therefore will require more repairs once the renters leave. This could require cleaning carpets, painting walls, patching up parts of the backyard, and even repairing major damage done by children, pets or careless owners.

With this in mind you will want to consider what type of deposit to charge the renters before they move in. This deposit is usually kept for the length of the renting period and returned in full only after an inspection of the property shows that no major damages were done throughout the renting period. If damages were done, or even if small repairs need to be made, such as cleaning the carpet, the renter will be responsible for this and it will come out of the deposit. Remember that quite a few states have laws regarding the amount a landlord can charge for a deposit, or the amount of time a renter has to return the money to the renter, so be sure to check these laws before signing a lease with a renter.

Keeping in mind the possible damages that can be caused, you will also want to consider who you are renting to and whether you will allow for special circumstances. This could mean considering whether you will rent to young adults or college students who may be more likely to throw a party or abuse the property. You will also want to consider whether you will rent to families with children and those with pets. Many who invest in rental property and allow for pets have specific rules about the type of pets or even the size of pets allowed in the rental property. Other investors will charge a specific pet deposit with a clause in the lease stating if the pet causes any damage, the damage cost will come out of the deposit. This could include pet stains on carpet, holes in the backyard, or even scratched or chewed up walls or wood in the home.

After an investor has decided to invest in a rental property and has determined exactly what price range they fall in, who they want to rent to and the exact location of the rental property, it is best to speak with a mortgage lender and an insurance agent because mortgage and insurance rates will vary when considering a rental property as compared to a primary residence. Usually mortgage lenders will only take into account 75-80% of the planned rent as payment for the home, because they will consider that some renters will fall behind on payment or that there may be periods of time when the home is not rented. This means that an investor needs to have at least 20-25% of their own money that shows available by the mortgage company, in order to front payments on the home if necessary. As well, insurance companies will have different requirements for real estate rental properties than they will for homes of primary residence, such as extra liability insurance. It is important to speak with both companies before bidding on a home so that you are completely sure of what the costs will be for investing in rental property.

I hope you have enjoyed this article. For more articles on real estate investing, to sign up for our free newsletter and listen to free weekly training teleconferences please visit my website at www.LarryGoins.com where you will also find free forms, documents, EBooks, Downloads and more. Also visit www.FinancialHelpServices.com  for investor financing. You will also find wholesale properties for investors and can sign up for notification of new available properties at www.InvestorsRehab.com.