How to Buy Rental Property

Lets look at a few key points on how to buy rental property.

There are a few ways to buy without cash. One way is to get a loan from a bank called a mortgage. In general you can afford a home worth about three times your annual household income. Typically you make payments on this loan every month for 15 or 30 years. Your monthly payments will probably be 0.75% to 1.15% of the purchase price. Most rental property buyers also make a cash down payment of 3 to 20% of the sale price. A higher down payment can make it easier to get a loan. It also lowers the interest rate is and the monthly payment. The longer the loan, the lower your monthly payments.

It is a good idea to get a copy of your credit report and clean up your credit record as much as possible.

So now that the credit situation is resolved, here begins the real action part of our how to buy rental property.

First things First. Go to your bank, ask to talk to a loan officer, and tell them you want to buy a house, fill out an application, and get what's called a Pre-Qual Letter. You may have to pay a small application fee of about $40 give or take.

Find a realtor. It is a good idea to ask friends for referrals.The seller pays the commission to your realtor, so the service of your realtor is free for you. Your realtor lets you know what houses are available that meet your needs and by answers your questions about the process. A realtor should also help you get the best price and answer any questions you may have on how to buy, but keep in mind that the realtor makes commission.Tell the realtor what part(s) of town you want your house to be in, what kind of house you want , and how much the bank said they'd loan you. Your realtor will give you a list of houses that match your criteria. Get out and go look at your possible choices.

We don't like getting a bad deal that will result in negative cash flow.

When you find a rental property you want, get the Disclosure from the seller. This is a list of problems with the property that the seller knows about, and which they're required to give you by law. If the Disclosure doesn't discourage you on the house, ask the realtor how much you should offer. It's ok to offer slightly less than what the seller is asking. Get a list of comparable or similar homes that have sold in the same area recently from your realtor so you can get an idea of how much the house is worth.

Have the rental property professionally inspected. You will probably have to pay this cost $300 or so yourself. If the inspection turns up problems not listed on the disclosure which will cost a lot to fix, try to get the seller to lower the price or fix the problems before the sale -- or walk away from the deal if you want to and your contract allows you to do so.

The bank will have the house appraised to determine its value. The bank doesn't want to loan you more money to buy a rental property than the house is actually worth. You might have to pay for the appraisal up front, otherwise it will be added to your closing costs. Otherwise, your involvement in this step of the process is not needed.

Find an insurance agent and get a quote. Again a good idea to ask friends for referrals. You can certainly price-shop 2-3 different companies if you like. Pick one and tell them you want the insurance. The cost will be added to your closing costs, you don't have to pay this at the time.

Closing. You go to the office that's handling the closing , and bring with you a bank check to cover the down payment and the closing costs (unless the closing costs are being rolled into the mortgage). Closing costs are fees charged by the companies and government offices which process the loan and the sale of the property. This can be two checks or one. They're generally 1 to 8% of the sale price. You might be able to have the closing costs added to the mortgage so you don't have to pay them up front. You don't need to get a check for the mortgage loan, the bank will wire that directly to the office handling the closing.

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