As a successful medical professional, you may be looking for ways to create new income streams. Your advantageous financial position can allow you to get the benefits of additional income without devoting full-time efforts. Real estate rentals are a proven route to this goal. What are some of the things you should know as you seek to get involved? Read on for our tips for buying your first rental property.
MediPro has long experience in securing home loans for health professionals, and with the details of purchasing real estate for rental. We are your clearinghouse for first time investment property advice. We are finance brokers – we can assist with a wide range of loans for medical practices. Reach us online or call us on 1300 375 626 – we’d like to show all the ways we can help you reach your goals.
Tips for Buying First Rental Property
Do the Math
Buying a house to use as a rental is an investment, and all investments are a numbers game. Before you look at your first property, you need to know where you stand financially as a prospective landlord. Your estimated Return On Investment (ROI) will be the way to determine if the rental to be a good investment.
You can calculate a rough ROI by adding together your estimated annual costs (mortgage payments, taxes, money for repairs, and landlord insurance), and subtracting this from the annual rental income you’ll receive to determine your net profit. Then divide net profit by your upfront costs (down payment, closing costs, pre-rental repairs). The result will be a decimal number, for example .08 – this would be an 8 percent annual Return On Investment.
Do the Research
You’ll need to develop knowledge of your area and the real estate market. Where are the best neighbourhoods – with good schools, access to shopping and transportation, and amenities like parks, sports complexes, and libraries? Your renters will be looking for these, and the better they are, the more you can expect to charge for rent. Find out how houses are selling in your chosen area – what is the range of prices for recent sales? Also look at recent rental prices – they will give you an idea of what you’ll be able to charge. The best scenario would be high rental prices with low vacancy rates.
Save for the Down Payment
A good time to start saving is right away – as soon as you think you might be interested in becoming a landlord. You’ll usually need 10% to 20% down payment. You may be able to use equity in your own home as part of the deposit. If you are not able to come up with the full down payment, you may get Lender’s Mortgage Insurance (LMI), which protects the lender if you are not able to repay the mortgage. LMI can be a fee added to your mortgage payment.
Get Pre-Approved
Looking for a rental house knowing you are ready and able to purchase can save a lot of time and uncertainty. Medical professionals are well-liked by lenders, due to high income and stable employment. Sellers appreciate pre-approved buyers – it shows you’re serious and committed, and they may be more willing to negotiate on price knowing that if you reach agreement the sale will be expedited.
Turnkey or Fixer-Upper?
You may come across some great-looking deals on otherwise attractive houses that need significant work. You’ll be legally obligated to provide a safe, liveable home for your tenants, so you’d have to take the time and pay the costs to bring a fixer-upper back up to standard. It can be difficult to determine these accurately beforehand, and it is usually best for a new landlord to buy a rental house that is already in good condition.
Get Ready for Repairs
Even the best houses have their bad days. From a leaky faucet to a hole in the roof, you will be responsible for maintaining your rental property in good condition. It is common to set aside 1% of the property’s value as a repair fund.
Consider a Property Manager
You may benefit from the services of a professional property manager, to deal with repair work and other house and tenant issues. They may charge up to 12% of rent or more, so they can be expensive, but the peace of mind may be worth it – especially if your career takes a significant portion of your time, which is often the case for medical professionals.
Know Your Landlord-Tenant Laws
From the beginning, it will be important to learn the landlord-tenant laws for your area. This doesn’t substitute for professional legal services, but it is to your advantage to be knowledgeable about you and your tenant’s rights and responsibilities. Although often overlooked, this is actually one of the most important tips for buying your first rental property.
Learn About Taxes
Owning a house for investment purposes will make your tax situation more complicated. There can be significant advantages. A good tax attorney with knowledge of real estate issues is very advisable to help you navigate these waters.
Start by Consulting with the Pros
MediPro Capital Finance is ready to open the door to investment homeownership for you. We’ve offered these tips for buying your first rental property to get you started, but there is a lot more to the process. We know it is a complex subject, and it can be a complicated undertaking. No need to go it alone.
We are here with the first time investment property advice you need, to answer your questions and suggest options – online via our contact page or by calling us on 1300 375 626. We’ve helped many medical professionals establish new income streams through home rental, and we can make this happen for you.