Looking for Bargains on Rental Property

Ten surefire ways to lock in profits

wreck your budget.

5. Know what the market bears. Don’t overpay for a property. Know what the market and neighborhood will bear in terms of rental income. The type of property, number of units, and the loan amount are dictating factors. Ideally, you want rental income to cover the mortgage payment, taxes, insurance, and maintenance. For example, if you pay $200,000 for rental property, then expect to get at least 1% or $2,000 in monthly rent, Dyas says.

6. Line up your financing. Expect to face scrutiny when you apply for a loan these days. “Eligibility requirements are tightening,” says Jerry Miccolis, a senior financial advisor at Brinton Eaton Associates, a financial planning firm in Morristown, New Jersey. Even though lenders are cautious, financing for investment property is still available if your track record is good and the property pencils out in terms of current or projected income, Gibson says. “Some investors use a home equity line of credit on their own home to finance a purchase of rental property,” Gibson says. “Others borrow from their 401(k). If rental income grows, they may be able to refinance from a lender and purchase more rental property.”

7. Set management responsibilities. You might hire a property management company to deal with tenants and handle maintenance. However, as much as 10% of your rental income will go to the manager, reducing your prospects for profitability. If you decide to manage the property yourself, be prepared to devote substantial amounts of time and effort to the venture, Gibson says. Unless you’re extraordinarily handy and live nearby, you’ll want to line up a plumber, electrician, heating/air conditioning specialist, and so forth, to deal with problems that arise.

8. Be realistic about rents. Know what similar properties in the neighborhood are renting for in order to project your income from the property. “Joining the local landlords association can help you get a good idea of how much to charge,” Gibson says.

9. Screen tenants selectively. Don’t accept the first person to apply just to get some money in your pockets. Once you have problem tenants in place, dislodging them can be an agonizing experience. Consider using a tenant screening service such as AmerUSA Tenant Check Service (www.amerusatenantcheck.com). To protect yourself, you’ll need a legally binding application form and lease agreement. Also, consider getting landlord insurance to cover unforeseen expenses such as tenant rent defaults or property damage.

10. Utilize resources online. Check out the Websites of such groups as the National Real Estate Investors Association (www.nationalreia.com), the National Association of Realtors (www.realtor.com) and National Association of Rental Property Managers (www.narpm.org).

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