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Is it Time to Invest in Rental Property?

So maybe you’ve been thinking about it for a long time and have been a little hesitant to venture off into the great untamed frontier of real estate. Possibly you’ve dabbled in mutual funds, a few stocks and even a CD or two – but there is nothing quite like the real estate market… and it always seems a little riskier for some reason. Well, the reason it’s riskier is the number of hidden pitfalls. Well, there is no better time to begin than today. So let’s take that bull by the horns and ride it…

There is nothing like being in the right place at the right time. Most people have been there at some point over the course of their lives, but have unfortunately failed to seize that moment. So all you have to do is to reconstruct that moment and know when to seize it – and it all begins with the search. Whether it’s the lower-than-market price, owner-friendly financing, location – or anything else that appeals to your liking – it’s all good…

Now that you’re all amped up and excited to get started, you need to understand the basics of what you’re looking for prior to breaking the bank on that geodesic dome you’ve been eyeing since your parents last took you to a drive-in movie. It doesn’t matter what you’re looking for as long as it meets these three basic criteria:

1. The property must be in good condition or will be with minor repairs that you are qualified to perform yourself or can afford to have done for you without exhausting your cash reserves. It is generally recommended that your repairs be limited to no more than the equivalent of 12 months of the property’s anticipated rental income – which is actually quite a stretch for a beginner.

Wait until you get your feet wet before you start rehabilitating a property. For those of you that are contractors or experienced flippers, you may skip ahead to the tenant screening articles.

[Before you submit an offer to purchase real estate, it is important to consider the following: Does the property require repairs in excess of $1,000 and is it your intention to you use a conventional mortgage lender (e.g., a bank) to finance the property? If the answer is “yes” to both questions, see our other articles on financing for more
information on “non-owner occupied financing” because many lenders will not approve you if the property is subject to repairs or conditions.]

2. The property must have the potential to appreciate. In other words, the local market condition cannot be overly distressed with foreclosures, toxic waste, sink holes, radioactive fallout or anything else that can potentially lower property values. Just make sure these values have gone up over the years by consulting a local appraiser or by simply ordering a comparable sales report from to see the difference in the property’s two previous sales transactions.

3. Your gross monthly rental income must at least equal your total monthly mortgage payment. If the monthly rent does not cover your mortgage payment – including the principal, interest, taxes and insurance – then your property must be able to appreciate at a considerable rate (usually seen in coastal or high-demand areas, where developable land is scarce). Unless you are a seasoned and experienced professional, it is not recommended that you take a considerable monthly loss on your rental just yet.