There are many factors to consider when it comes to searching for the right real estate investment. Location, safety, convenience, and of course price are just a few things you need to consider when looking for a rental property to purchase. There are also several steps in the purchase process to prepare for, whether you’re using an agent or going it alone. Keep reading so you can put your best foot forward when it comes time to purchase a rental property.
Choose the Right Location
The first step to finding the perfect property is to ensure you are looking in a location that will be profitable. This includes factors like:
- Affordability
- Job growth
- Population growth
- Proximity to entertainment (restaurants, shopping centers, theatres)
- Safety
- Property taxes
- Proximity to schools and universities
- Access to public transportation
A lot of these factors can be answered with a quick neighborhood search on Apartments.com. You can read a detailed area guide on the area, get biking and walking scores, top-rated schools in the area, and more.
Once it’s time to list your property, adding these key factors in the description will help draw in more tenants. You can also view a rent comparables report to view rent pricing for similar properties in the area.
Find a Property
What if you’ve settled on a geographical area but haven't made your mind up about the type of rental you want to invest in? Combing through other listings in that area may help solidify your decision. Maybe you’re in search of a charming single-family house where your tenants can enjoy a unique space, a yard, and a great deal of privacy.
Perhaps you're considering a multi-unit building, where you'll manage more than one rental. With multiple units you’ll still have a consistent income flow if one tenant moves out, but your initial and running costs will be greater than what you'll oversee for a single-family property.
You can also look at townhomes and condos to get a better sense of what property is right for you. Once you have settled on a property type, it’s time to start touring properties.
Start the Tour Process
After you’ve made a list of properties you’re interested in, make arrangements to see the property up close. Ideally, you want to visit the property in person so you can get a better sense of the space, as well as its overall condition. If you can’t tour in person, virtual tours are becoming much more commonplace and easier to set up.
Keep an eye out for open houses. You can even attend a virtual open house, an event typically set up so that the listing agent live streams a walkthrough of the property. This can be beneficial if you’re looking at properties in a location outside your local area.
What to Observe During a Tour
How ever you choose to explore potential properties, there are some critical points you’ll want to look at in detail before you make an offer:
Foundation. This is arguably the most critical area of a home. A bad foundation can make a home uninhabitable and cost thousands to repair. Inspect the foundation of the property for cracks, erosion, or any other irregularities.
HVAC system. Heating and air conditioning (where applicable) are legally required to keep a property livable for tenants. Make sure you know how old the system is and make note of where the furnace and AC are located. This will help give you an idea of how easy they will be to repair or replace.
Roof. An old roof can become a massive headache if it’s not replaced. Old shingles and other roofing materials can begin to leak, leading to other problems in a property. A new roof is one of the most expensive home items to replace, so you'll want to make sure it’s in good shape.
Electrical system. Chasing electrical problems can be a nightmare for even the most seasoned electricians. Make sure the prospective property uses updated wiring and fuse boxes to prevent electrical shock or fires.
Water drainage. Bad drainage around a home can lead to erosion and foundation issues. Make sure the property you’re looking at has gutters and spouts in good condition, or another drainage system in place to keep water away from the house.
While taking note of the major components of a rental is sound practice, it’s always in your best interest to have the property properly looked over by a professional home inspector before you purchase the property. Additionally, most financial institutions will want an inspection and appraisal before they approve a loan.
You may also receive a seller’s disclosure as you near the closing process on a property. This is a list drafted by the seller stating any issues with the property with the systems mentioned above (and more). It can help shed some light on any issues you missed or help you negotiate a better deal.
Approach Negotiations Strategically
Negotiating on the price of a property can be the most intimidating part of buying without an agent. Knowing the prices of similar homes in the area will help give you a good baseline when you start negotiations. Always offer lower than whatever amount you’ve been approved for or are prepared to pay, that way you leave yourself room for negotiation. It is essential to know what goes into financing a rental property, such as what kind of mortgage and loan term you want.
Any issues you noted during the property inspection should also be considered when negotiating price. You can ask the seller to repair these items before closing, or to reimburse you for the cost of the repairs if you would rather handle them yourself or with your own contractor.
It’s best to do any negotiating in writing, especially if you’re not using an agent. Save emails, texts, letters, and any other tangible form of contact between you and the seller in the event that other issues with the property are found or should the seller try to backtrack on the mutually agreed-upon price when it’s time to close.
Close with Confidence
Purchasing a property involves a considerable amount of paperwork, especially if you are navigating the process without a real estate agent. You may need to prepare a written offer and, if it is accepted, review additional documents as you move toward closing.
If you are financing the purchase with a mortgage, you should receive a Closing Disclosure before closing that outlines important details about your loan, including the loan terms and closing costs. Depending on the transaction and applicable state law, you may also want to consider having a real estate attorney review the closing documents. A property purchase is a significant financial transaction, so understanding the documents and terms before signing can help you approach closing with confidence.
Final Considerations
Finding and buying a rental property can require a significant investment of both time and money. Before moving forward, identify the factors that matter most to you, understand your negotiating position, and carefully review the documents involved in the transaction.
Once you're ready to rent out the property, take advantage of Apartments.com's Rental Tools for landlords. You can list, lease, and manage the rental—all at no cost. Create your free account today.
Originally published on January 15, 2021, and has been updated.
