How to Buy a Rental Property: 5 Tips for First-Time Buyers

When it comes to making stable financial investments, purchasing a rental property ranks quite high on most people’s lists. An investment property can offer the chance to keep your money safe over a long period and can provide support and security for your family. Understanding how to buy a rental property is easy with the right lender by your side.

The team at TwinCity can help. As experts in the world of home loans, our concierge brokers provide you with the best rates, top service, and a smooth closing process. Whether you are buying a first home or a fifth, we have the experience to get the job done right.

The core steps in securing a loan for a rental property are similar to those for a primary residence. But there are other things to keep in mind that can be unique to this process. Here are five tips for first-time investment property buyers.

1. Pick a good location.

Location always matters in real estate and even more so for investment properties. This consideration is particularly important if you are planning to buy a short-term vacation rental property. You need to make sure that there is plenty of demand in the area where you are planning to buy. 

Spending some time on vacation rental sites such as VRBO or Home Away will help you gauge the demand in a particular area. If there are large numbers of rentals with a lot of availability, it may be a saturated market.

It is also a good idea to see what the popularity of a location looks like during the offseason. If you are planning to buy in a popular summer location, will you be able to make enough to carry you through the other months? Or vice versa?

For those looking to invest in a long-term residential property, the considerations will be slightly different but equally important. You not only need to consider the inventory, but also qualities such as:

  • Neighborhood information
  • Suitability of local schools 
  • Crime rates
  • Accessibility to public transit

When looking at a location for an investment property, be sure to find out if there are restrictions on rentals. Some homeowners’ associations, neighborhoods, and even towns have bylaws that limit or forbid rental properties. Make sure you verify that you will be able to use the place as a rental so that you do not have an unpleasant surprise after closing. 

2. Avoid a fixer-upper.

It can be tempting to grab a bargain on a property that needs a total overhaul. You may have a vision of selling it for millions when the time is right. With rental properties, however, you are best finding a home that requires minimal improvements, if any. 

Making small cosmetic updates can be a good use of your money if they don’t break the bank and are quick to complete. And sometimes, those properties have a great price tag, making it worth a little time and money to spruce them up. The goal when purchasing a rental property is to allow it to make you money as soon as possible. If you have to dump a lot of funds into it right away, you may not see a favorable return on your investment. 

3. Come to grips with expenses.

It can be easy to see an investment rental property as a fast, simple way to make some cash. You just subtract the mortgage amount from the rent and then go on a shopping spree, right? This isn’t quite how it works. You are responsible for all of the taxes, repairs, upgrades, and maintenance.

As a general guideline, you should expect at least 50% of your rental income to go back into the property in some form. In addition to the mortgage, your budget should cover all of the following costs, as they apply to your situation:

  • Capital expenses fund (new HVAC, windows, roof, etc.)
  • Property taxes
  • Property management fees
  • Utilities (for short-term rentals)
  • Insurance
  • Routine maintenance

In addition to ongoing expenses, the up-front costs to buy a rental property can be higher than you expect. Unlike for a primary residence, home loans for investment properties typically require 20% down. 

If you find a property in an excellent location, all of these expenses can be well worth it for your long-term wealth.

4. Try to buy below market value.

Those who routinely invest in real estate rental properties tend to follow one crucial guideline. Purchase a property that is available below the current market value. Grabbing a discount allows you to build equity quickly.

And work with your lender to find the most competitive interest rate. A broker will be able to serve you best. They can offer a wider variety of loan options and usually a better rate, as well.

5. Do your research.

When you consider how to buy a rental property, it’s great to get advice from multiple sources:

  • Your real estate agent
  • Your lender
  • Other landlords
  • Online experts

But none of these sources can be a substitute for doing your due diligence. Take time to understand what properties in your niche sell for, so you are ready if a great deal comes up. Get to know the area, the market trends, and the demand for rentals.

Tell your circle of contacts that you are looking for an investment property. You never know when they may be able to connect you with someone eager to sell. Putting in a little hard work from the beginning can mean that you are ready and waiting when a fantastic deal presents itself.

We Are Ready to Serve

Here at TwinCity Lending, we are dedicated to helping you. We can offer the guidance and advice you need to proceed successfully with an investment property purchase. As a concierge mortgage broker, we have all the tools necessary to get you the best loan package for your needs.

Get in touch today to have a chat with one of our experts and make your rental property dreams a reality.


Leave a Reply