Keys to a Cash-Flow Rental Property

Any individual can buy an investment property and rent it out. However seasoned real estate investors will make a property cash flow. Cash-flow means that your rental property is making money each month, and it is an asset and not a liability. Below is a list of rules that should be followed when buying rental property.

·         Determine rental rate for area of potential rental property- Determining rental rates for your potential rental property is very important. The first source is Craigslist. Perform a search for properties in the same area as the potential rental. Be sure the properties are the same number of beds and baths. This will give you a good idea of what property is renting for in that area. The next step is to check a website called Rent-O-Meter. This site will rank rent amount as high, medium, or low for the area of interest. In addition, take a drive around the neighborhood and call any [for rent signs] you may see. This will also give you a good idea of what landlords are asking for rent in those areas.

·         Be sure to get a fixed rate mortgage loan- If financing is needed for your rental property, I recommend getting a fixed loan. Be aware of Adjustable Rate Mortgages (ARM’s). Generally, you would not want an ARM because your payments will adjust over time. This type of loan is not typical for a long term hold. You may even consider an interest only loan if the property you’re buying has a substantial amount of equity left in it. Do your research on the different types of loans and decide which fit you best.

·         Follow the $200 a month cash flow rule- Rental property should cash-flow at least $200 a month. Cash-flow is the rent given to you each month minus your mortgage payment and any other fees associated with the property. If your rental property does not net $200 a month, then you have not structured the deal right. Be sure to run your numbers, and double check all your calculations.

·         Limit upgrades- Be sure to limit upgrades to a rental property. Tenants normally do not take care of property like homeowners will. The only things that should be repaired if needed is carpet, paint, and any general repairs the property may need. Don’t waste money on items that the tenant probably will not care about.

·         Buy below market value- Buy investment property well below market value. Buying below market value will make the $200 a month cash-flow realistic. Landlords would want to try, and avoid buying investment property at full market value. Buying property from a wholesaler is a good way to find property under fair market value. Properties that wholesalers find may, or may not need repair. Be patient until a wholesaler can find the right property for you. Landlords are capable of finding deals themselves, but they require a lot time and money. Leave it to the professionals, and focus on finding the right rental property.

Take your time when buying property. It is easy to get ahead of yourself, and buy a property you later regret. Every deal has different levels of success, and when it is a good deal you will know it. Be smart with your decision making process. Do research, and be sure to follow the basic rules from above.