If you're ready to handle the financial and logistical responsibilities of owning rental property, the next step is to choose a property to purchase. It's important to consider factors that may cause costly tenant damage repairs in the future.
Who lives there?
If the property will be occupied when you purchase it, you may want to do some research on the current tenants. The previous property owner should be able to provide you with background checks, credit checks and payment history. Choosing a property with trustworthy tenants can save you from spending extra time and effort on damages.
What do the residents have to say?
Check out the rental property online and see how highly tenants have rated it on Google, Facebook or Yelp. If there are reviews complaining of bed bugs, cockroaches, leaks and faulty wiring, you may want to cross the property off your list.
It's ideal to choose an area with a high return on investment and a strong rental market. If there are properties with a capitalization rate of 7% or greater in your area, stay local! Knowing the area and what houses are selling for gives you a great strategic advantage over other property owners. And, if you are planning to make repairs yourself, you'll thank yourself later for having a short commute to the property.
Buy single-family homes
For your first rental property, maintaining a one-bedroom apartment or single-family home will be much easier than multi-family or commercial properties. The more tenants, the stronger the likelihood of damages to the property.
Unless you know how to make large repairs quickly, easily and inexpensively, you're likely to pay too much to renovate a fixer-upper. Purchase rental properties that are below market value to save on costs.
Consult a real estate attorney
Real estate attorneys understand leverage and opportunity cost. Whether you're unsure about creating the terms of the lease or you need clarity on how your property tax bill will change, an attorney will have the background to advise you.