(Many thanks to John Johnston, Investor, for his input on this blog post)
1. Perform a Thorough Property Inspection Yourself
Though seller's are obligated to disclose hidden defects, the principle of buyer beware is alive and well when buying real property. It becomes important to carry out a thorough visual inspection of the property with your REALTOR®. This gives you good familiarity with the property, plus an opportunity to jot down questions or concerns you may have. Get sellers to answer as many questions as possible.
2. Order a Property Inspection Report
It may cost you $300 to $400 but a good added precaution. It can help you avoid problems and potential, serious costs down the road; confirm or ease any concerns you uncovered; as well as discover overlooked issues. A good inspector will discuss needed repairs; and address the condition of foundation, roof and mechanicals (like heating and electrical). The report will also speak to future repairs and maintenance that you can stage over time.
3. Do the Math
Review the monthly/annual costs (Insurance, taxes, water, snow removal, maintenance and repairs), as well as the rental income. Your net income after expenses needs to cover mortgage payments, as well as give you an adequate return on your investment (or down payment) depending on the condition and location of the property.
4. Review and Compare Rents
Are the rents competitive with other rental properties in the area? Drive around the immediate area and look for "For Rent" signs. Ask about rents and utilities. Look in local papers and ask rental or your real estate agent. You'll find most quite helpful in sharing information.
5. Operate the Property in a Relatively Problem-Free Way
Front end time to screen tenants can save you a lot of headaches. Get employment and previous landlord references and talk to them. You can even have the prospective tenant give you written consent to obtain a credit report.
6. Location is Still King
Make the property's location a prime motivator for buying, as it is a main reason for tenants to choose where they live. Is the property close to schools, shopping, work and leisure? Does it have easy access to bus lines and highways? Location has an impact on rents and quality of tenants.
7. Work with a Good REALTOR®
He or she will advise for or against a property and why, give pros and cons of the area and property, consult with you on value and assist in negotiating a good purchase contract. You also get tips on listings that are about to come on the market.