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Buying a Rental Property – Essential Tips

If one is considering the purchase of a property as an investment, such as renting the property out, one should approach this area with some caution as well as an informed point of view, rather than just rushing into what might be perceived as a bargain. The following tips are meant as a guideline to put you in a position of making an informed and balanced decision in terms making the right choices and possibly saving you money from making the wrong decision, in this purchase process.

•   How long has the seller owned the Property?

The period that the owner of a property has owned the specific property will determine the value held in the price, this is due to the fact that someone who has owned the property for a short period will not have had the time to generate a sufficient profit due to financing fees. This is determined by the level of equity that is available in the property and can put the seller in a position to sell you the property at a value added price. Hence the property owner that has had the property for a few years will be in a position to be more flexible in his price acceptance as he or she would have made their money over the years in terms of the growth in the value and therefore equity of the property.

•   Why is the property being sold?

If the seller is speculating based on increased prices, then the value that may be inherent in the property will not be revealed in the price, as they are seeking a profit based upon potential market increases. Alternatively a person who has been transferred or might be in a position of financial difficulty, may well be in a rush to sell the property, which would make them more open and flexible to a value added price offer by the potential buyer.

•   How quickly must the seller get rid of the property?

This will reveal a mound of information. If the seller is under pressure because of financial commitments, or they have an accepted offer on another property then the value will be revealed in the time frame needed to sell the house. The 'casual' seller might be waiting for a suitable price, and experiences no direct pressure and therefore will most likely not be flexible in price offers on the property.

•   Debt on the property, as well as secured and unsecured debts?

You may not get an answer on this question, but it serves to establish what the seller might need to break even and / or make a profit after his or her debts and mortgage has been paid on the property. If the seller is looking to make substantial, and probably unrealistic, gains on the sale of the property then the chances are good tha you are wasting your time and there is no value to be found here.

•   Put yourself in the Tenants shoes

Look at the property from a tenants point of view, is it suitable for advertising and marketing the way it is now? Does the property need any attention in terms of repairing or refurbishment? If the house was bought from someone in a financial crisis, these people may even make good tenants, especially if they have a family and do not really want to be uprooted. Consider the tenants viewpoint around the location and style of the house.

These tips form the basis of numerous questions that need to be addressed when one is in the market to purchase a property that will be used to rent out. They are by no means comprehensive but rather a starting point in establishing value, and seller motivation in terms of properties that you may be considering.