Buying a rental property can feel overwhelming, especially if it’s your first time in the real estate investment pool. There are so many different things to think about before you jump in.
When you break it down into simple steps the task seems more manageable. We’ve outlined the basic steps that you need to go through as you buy a rental property.
Understand Your Desired Outcome
By this point, you’ve learned a lot about the basics of real estate investing, you’ve probably read a book or two, you may belong to a network or maybe have hired a real estate coach. You are now committed to purchasing a real estate asset.
Before going any further it’s important to first understand and acknowledge what you are trying to achieve with any real estate asset.
- Are you looking to invest as part of a longer-term retirement plan?
- Are you looking to supplement your current income?
- Are you wanting to flip for profit?
The second thing you need to understand is how much available time do you have to put towards your real estate business every month? One hour, five hours, eight hours or unlimited time? Do you plan on self-managing or will you be looking for help from a professional property manager?
The type of property you purchase will have a significant impact on your ability to achieve your desired financial results and control the time your real estate portfolio needs you.
Who is Your Desired Customer (Tenant)?
Once you have established your plan of where the real estate will fit in your financial plan and how much of your time it will take, it’s time to start zeroing in on your desired tenant profile.
There are several different tenant profiles, and each come with their own advantages and disadvantages. It’s important to consider this upfront as the property you purchase will determine the tenant profile it attracts. You can read more on how to pick the right property for the right tenant here and read another great article how different types of homes can be better for certain types of tenants.
Talk to a Lender or Mortgage Broker
You are now clear on your financial plan, time commitments and the tenant profile you wish to attract. Before you start exploring opportunities you should know if and how much of a mortgage you can qualify for, and how much down payment capital will be required.
Unless you have enough cash on hand to purchase a property outright, it’s a good idea to sit with your bank, or better yet a mortgage broker, that understands and specializes in arranging financing for investment real estate and get pre-positioned for mortgage financing. Qualifying for a rental property is quite different from a home you wish to live in. If you are unfamiliar with the process take a read through our post about qualifying for a mortgage as an investor.
Considering Your Options
It’s time to start looking at properties and exploring the various styles of investment properties available. The amount of down payment capital you are working with and your ability to qualify for financing will ultimately determine your acquisition price range. However, it’s important to understand that each property type will undoubtedly perform differently.
What is best for you?
An older home in a mature neighbourhood that requires renovations, a new construction home in a new neighbourhood, or a new construction infill home in a mature neighbourhood? How does each home perform financially? Make sure you learn how to qualify an investment property to find one that will work best for you.
Submit an Offer to Purchase
Once you have found the perfect property to help you achieve your desired outcome it’s time to submit an offer to purchase.
If you opted for a new construction property, at this time you’ll select the lot, basic floor plan of the home, and select any inclusions or options that will help attract tenants and make for a durable investment property.
Every offer to purchase should include buyer conditions that allow you to perform the proper diligence required. Subject to financing and a property inspection are common buyer conditions but based on the property type you are purchasing you may require further conditions.
Also, be sure to include any special terms that may be needed for different property types and tenancy arrangements. It a good idea to have someone on your team that can protect your interests and help you with this process. Check out our top tips for finding a good investment real estate agent.
As overwhelming as it can seem to buy a new rental property, you can see that it’s not so bad when you think about it step-by-step. More importantly, there are plenty of people who are willing to help you along the way. Call us to get started.