5 Tips for Buying Your First Rental Property

September 2, 2020 (Investorideas.com Newswire) Investing in real estate is a good idea for a savvy investor who doesn't mind taking a risk. An investment property used as rental property can result in an attractive ROI in the form of passive income. Understanding the real estate market, variations in home values, and overall property value are important when considering an investment property. Before setting out to find your first rental property, you need to follow some useful buying tips.

1. Pay down your personal debt first.

Carrying debt as part of your investment portfolio isn't a bad thing depending on your investment skills. It's a good idea to pay down your personal debt before taking on your first rental property. Depending on the type of investment you want to make, having student loans, outstanding credit card bills, and a car loan may require you to hold off on buying a rental property. Make a calculation about your debt level and the potential ROI. If your return on a real estate investment is greater than the cost of debt, you don't need to worry about paying down personal debt.

2. Compare buying a property with financing a property.

One of the first steps to purchasing an investment property is to set a budget. Then you need to consider if it's better to buy with cash or finance your investment property. The monthly positive cash flow generated from a rental property will vary depending on how you acquire the property.

Maybe your first home or primary residence has enough equity in it for you to make a sizeable down payment on a condo or duplex. Chances are you won't have enough cash to buy your first rental property outright. No matter what type of property you hope to invest in, there is a mortgage loan option for every qualified borrower.

Investment mortgage loans tend to come with higher interest rates, but with the right research, it's possible to get a low-interest rate mortgage. Using a mortgage calculator will help you understand your mortgage payment. The purchase price, your credit score, whether the loan is long term or short term, and interest rates all factor into financing a rental property. With this in mind, ask yourself "should you buy an investment property?"

Savings helps you compare investment home loans from top lenders so that you can find a favorable interest rate. You don't have to be an expert real estate investor to get a great deal on a mortgage loan. With a little help from Savings, you can compare lenders to find the best fit for your investment property needs.

3. Global economics factor into the housing market.

A great investment needs a well-thought-out investment strategy. Real estate investing in a single-family home for renters is a great source of passive income and comes with tax benefits. The health of the stock market factors into the health of the real estate market. Mark Wiseman is a global investment manager and a business executive pro when it comes to making a good investment.

Until last year, Wiseman was the Senior Managing Director at BlackRock, Global Head of Active Equities. He was previously President & CEO of the Canada Pension Plan Investment Board (CPPIB), has been responsible for a major private equity fund and has advised on long-term economic growth. Wisemen regularly contributes his investment expertise to the development of research and tools that encourage long-term investing.

4. Buy less than you can afford.

Play it safe when buying your first rental property and buy less than what you can afford. Even if you find a comfortable purchase price and can afford all the monthly expenses, it's a good idea to spend less. There are plenty of unforeseen costs and expenses to a rental property that can eat into your rental income. You will be responsible for monthly mortgage payments, income tax, property taxes, landlord insurance, maintenance issues, and general property upkeep.

5. Make sure it's the right time to take on rental responsibilities.

Assuming the role of a landlord means a lot of rental responsibilities. Unless you have a property manager, renters will call on you for maintenance problems. Property vacancy means no cash flow so you will be responsible for finding qualified tenants. Being a landlord requires a lot of time and energy in addition to maintaining your own home. Make sure it's the right time to invest in a rental property and become a landlord.

An investment property won't make you wealthy overnight. So long as you are realistic about your investment goals taking on a rental property can be a rewarding investment.

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