I am recently getting into real estate in the form of trying to understand every aspect a home owner must consider before buying rental property.
I’m hoping someone can help fill in the blanks of things I might have missed when going through the rental property convential loan process.
My goal here it to have a step by step reference guide for myself and other beginners.
I’ll start from the beginning as far how I think as step by steps go:
1. Get pre approval by the bank with good rates for a conventional loan with a 30 year mortage to keep my debt to income ratio low.
1 1/2: set up seperate bank account for all rental property fiances. Maybe set up a second one for reserves cash.
2. Work with real estate agent to find rental property somewhere I’d like to live (for a year minimum) Preferably with vetted tentats already living in it.
3. Do the math. Consider average cost houses in that area are selling, taxes on the house, closing costs, maintenance costs, umbrella insurance costs... Run ROI scenarios. What elese am i missing here?
4. Purchase the property being sure to bargin 20-30% lower than asking price unless price is fair as is.
5. Get professional inspection of home after agreed upon deal.
6. Renovate if needed.
7. Purchaes umbrella insurance or LLC for home.
8. If renters arent already in home, need to find a service that completly vets potiental renters for home... Is a background check enough?
9. Rent should be established using 70% occupancy rule. So basically if the mortgage was $700 per month. You would want to try and bring in $1000 per month to cover the mortgage in case the unit is vacant for a month or 2 while search for a replacement tenant.
10.Hire property manager? Is this nescarry for just one house? I’m not sure I could get calls about fixing the house during most business hours while starting out this rental property business.
11.Write up Rental property agreement. Is a real estate lawyer neacarry here to do this? I would want this to be extremely thurough so i assume a lawyer is the safest option.
12. Collect rent and file taxes appropriately.
Now the #1 question here is... What am I missing here? Please help as I want to understand the ins and out of this business.
The list you have compiled has you going in the right direction. For the finer details, I'd suggest reading a book or two and/or speaking with a good real estate agent, lawyer and CPA that understand investing and can help you with many items on your list. Two books I like are HOLD: How to Find, Buy, and Rent Houses for Wealth and The Book on Rental Property Investing: How to Create Wealth and Passive Income Through Smart Buy & Hold Real Estate Investing. That should help fill in the gaps and give you something akin to a playbook/checklist of what to do to get your rental business going.
@Tyler Battaglia you’ll need homeowners insurance to get a loan from the bank. They won’t give you a mortgage on a property that is uninsured and could burn down tomorrow. Work with your insurance agent to get a low premium that has the coverage you need right around the same time you do your inspections. If you back out due to inspections, it’s no big deal bc you won’t pay until closing. It just helps the process to have it lined up for your loan underwriter.