Hi all! I hope you had a wonderful Thanksgiving! I had the opportunity to spend it with my dad who I had not seen in 2 1/2 years. It made me realize that I need to make sure less time passes when I see him again, and to not let life get in the way of spending time with family.
Well, even though a lot of people are dealing with short sales and foreclosures, there are many people who are also in a position to buy that second house--an investment property--their first investment property. With the large number of homes on the market, interest rates still low, this is the time to buy. There are quite a few deals out there to be had. You do have to do your homework though.
First off, when you do buy a rental property, it is a long-term investment. You have to plan to be in it for more than two or three years. The initial concern when looking at a property that you are considering purchasing for rental is to find out what the current going rents are in the area. Even if there are a lot of rental properties available, if you can afford to list yours for rent just a little lower than the going rents in the area, you'll get it rented quicker than the rest.
If you have the funds to pay for a rental property out-right that is great, but this is for those who will get a mortgage for their property. When you get that mortgage, you'll want to be able to "cash flow" your property. This means that after paying your mortgage, property management fees, and any other expenses, you'll have more money coming to you than you will pay out.
Usually the best properties for rental investment and re-sale value in the future are at least three bedroom, two bathroom homes, with garages. These are your basic "bread and butter" type homes.
If the going rents for the average 3 bedroom 2 bath in your area are around $1,000 a month, then you want to make sure your mortgage payment (which includes Principal, Interest, Taxes & Insurance), plus management fees equal less than that $1000 per month. Your payment, of course, will depend on the price of the home, and your interest rate, and your down payment. Taxes and insurance will vary with the home and area, so you will need to do your research and get insurance quotes to find out your costs.
Property management fees average around 10 percent for long-term rentals. Depending on the area you live, they may be higher or lower. This means that if you get $1000 a month rent for your home, your property manager will get ten percent of that.
You can purchase a home warranty annually as well to help lower repair costs. A home warranty will require a deductible of around $50 to repair something (as long as it is covered under their policy). Some owners require the tenant to pay that deductible if a repair is called in. This is a personal preference.
When you do find a home to buy, I always recommend you get a home inspection prior to the purchase to alleviate surprises. Many times, fixer-uppers are great properties to buy and turn in to rental properties. Done right, you will have equity in the home, even after making repairs, and you will still cashflow easily.
When you decide to get in to buying rental properties, it is best to have a reserve for vacancies and repairs of about three to six months. More is better, but not always possible. You can also cut costs if the property is local, you can do repairs yourself and/or you manage the property yourself.
And, of course, there is always the tax benefit of owning a rental property. Talk with your tax professional as to how it will affect you directly, however, you can take depreciation, as well as write off repairs, taxes, insurance, and interest on your mortgage.
Regardless, before buying your first investment property, do your homework--it can be a great long term investment.
Good Luck! | 
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