Real estate offers an excellent opportunity for capital appreciation and a steady rental income. You will need to learn some basics and do considerable research on your own. Here are some points to consider:
Duties of a Landlord
When owning real estate you become a landlord. As such you are responsible for maintenance and repair of your property. You will need to learn about leases and rental agreements, how to obtain good tenants who will pay their rent on time and will not damage your property, dealing with fixed expenses such as mortgage payments, taxes, insurance and in some cases utility bills. building codes, parking and any restrictions on your property.
Choosing a Location.
Your location is the key to your success. Start by looking for a duplex. Here you can rent one half and live in the other half, thus saving the expense of having two properties. Visit your local assessment and zoning offices. Check taxes, zoning and any restrictions on your property. Be sure you have enough parking space. Most couples each have a car which means that you need two spaces for each tenant.
Hire a reputable engineer who knows the neighborhood and any drawbacks you might have such as a water problem or wiring codes. Check the foundation for cracks and leaks. Check the rood as well for wear and tear. Be sure the heating, air conditioning and plumbing systems work properly. Any repairs to any of these items will be costly and may be a reason for avoiding a purchase altogether.
Make a detailed list of all repairs and get estimates on the exact costs.
Always remember that you are buying the property “as is” which means that, baring fraud, you have no recourse once you take possession.
Create Balance Sheet
List all of your fixed expenses. These will include mortgage, taxes, insurance and utilities. A rule of thumb is that you should not pay more than four to six times your rental income. This is the second key to your success. It is very difficult to find properties that meet these guidelines. You may need to walk away from several attractive properties that do not meet your criteria.
How to Negotiate with the Seller
Use your repair list as a bargaining tool. You have the choice of having the repairs done by the seller before the sale or reducing the price of the property by the repair costs. Take your time doing this. The seller may agree to some items but refuse on other ones. His refusal will give you an indication concerning how firm he will be on his first offer. You will then need to lower your offer by more than the normal 10% to 15% to include the repairs that the seller refused to do. Raise your offer by less than the sellers reduction. If you come to a final price, the attorneys will then set a closing date.
Once, you’ve been able to build up some equity, you can use it for the purchase of your second property.