A guide to buying rental income property

If you are interested in buying rental income property, then you must first be aware of the pitfalls of such a purchase. Investment property has a greater potential for loss because your investment relies on good tenants, a good net sheet, little major repairs and on destiny. Even the best investors will have problems sometimes. Read more on how to buy rental income property.

What is included in a net sheet

Rental investment is a good way in which to make a living. However, you must first learn what not to do and how to buy smart. Property income is based on a few things. You must have a complete net sheet which includes 15% for vacancies. If for some reason, you do not have any vacancy, then that amount is just money in your pocket. Your net sheet must include: Mortgage, interest, taxes, insurance, vacancy allowance, yard maintenance, manager's fees, repairs, electric, water, trash pickup and extra money for legal fees in case of eviction. Never rely on the word of your estate agent who wants to make a commission. Some people will rely on what the selling agent states. However, a thorough check of the property will avoid some of these pitfalls. Property purchases should also require that all leases be placed in escrow for you to view before the closing of the deal.

Choosing a positive cash flow property

When choosing secure investments, remember that you do not want to break even. Why would anyone invest thousands of dollars, spend hours running the complex and then make nothing? If you cannot double your income, then the property is not a good one to purchase. The exception to this rule is if there is potential for increase in values. Most values are dropping, and potential for increase may not be seen for many years to come. If you figure your net sheet, then subtract that figure from your rents received. Take that figure and look at a percentage of return on your investment (ROI). A good deal may be nothing more than a money drain.

Financing rental income property

Buying rental property depends on whether you qualify for the loan of your choice and, this must be specified in the sales contract and escrow instructions. Being stuck with a bad loan will decrease your profit, and make you subject to increase of interest rates down the road. If you plan to hold on to the property for more than two years, then do not take a variable rate loan. Variable rate loans are for rehabbers or investors flipping a property quickly. Also, limit the points that you pay on your loan as closing costs must be figured in the profit that you will make.