Buying a home to rent out – that is, purchasing an investment property – is no small undertaking. Any number of things can go wrong to ultimately make you lose money. Still, though, real estate is typically a sound investment, especially when you consider that more people have become millionaires through real estate investing than by any other means. Read on to find out how to buy a Los Angeles home you intend to rent out.
Determine Whether You’re Really Cut Out to Be a Landlord
The first thing you should do before taking any other steps toward buying a Los Angeles home to rent out is to sit down and take some time determining whether you are in fact cut out to be a landlord. It’s a job that comes with all kinds of headaches and typically requires some handyman skills and experience.
So ask yourself these questions: “Do you know your way around a toolbox? How are you at repairing drywall or unclogging a toilet? Sure, you could call somebody to do it for you or you could hire a property manager, but that will eat into your profits. Property owners who have one or two homes often do their own repairs to save money.”
In the beginning, with a rental home, you really need a positive cash flow, and doing your own repairs and maintenance can help you make sure of that. But as you add more rental homes and increase your monthly rental income, you will probably want to hire this work done to have more time to manage your properties.
Find the Right Location for a Home to Rent Out
The next phase of buying a rental home involves finding the right location. You certainly don’t want to wind up with a rental in a decaying neighborhood or in an area with bleak economic prospects.
When buying a Los Angeles home you intend to rent out, “look for a location with low property taxes, a decent school district, and plenty of amenities, such as parks, malls, restaurants, and movie theaters. In addition, a neighborhood with low crime rates, access to public transportation, and a growing job market may mean a larger pool of potential renters.”
Some of the things you should look for in the location where you want to buy a home to rent out include:
- A high demand for rentals
- Good prospects for positive cash flow
- Lenient rental laws and regulations
- Low price-to-rent ratio
- Safety and low crime
- Good schools
Find the Property and Conduct an Investment Property Analysis
After deciding on the area, the next step in the process is to find a property and then conduct an investment property analysis.
For the first part, finding a likely property, thorough research will be your friend. Then, after conducting your research, you should lean on your Los Angeles agent’s expertise to help you find the right rental property.
“The next step that you absolutely cannot miss when buying a [home to rent out] is conducting an investment property analysis. Once you’ve found a property (or a few) that you think may be a good real estate investment, it’s time for a more thorough analysis. With investment property analysis, you compare different investment properties, along with data attached to these properties . . . to compare and estimate how they will do once rented out. In this way, you will be sure to find the best investment property in the market of your choice.”
Carefully Consider Buying/Financing Options
Having found a promising property (or properties), you then need to carefully consider the financial end of the purchase. Typically, the two purchasing options are buying with cash (if you have the wherewithal) and financing the purchase.
For those looking to buy a Los Angeles home they intend to rent out and fortunate enough to have plenty of cash on hand, buying with cash can help them generate a positive monthly cash flow right out of the gate.
“On the other hand, financing can give you a greater return. For an investor who puts down 20% on a house, with compounding at 4% on the mortgage, after taking out operating expenses and additional interest, the earnings add up to roughly $5,580 per year. Cash flow is lower for the investor, but a 27.9% annual return on the $20,000 investment is much higher than the 9.5% earned by the cash buyer.”
Which option is better for you depends on your investing goals. Call 562-881-9811 to talk to a Los Angeles agent who can help you plot this course.
Negotiate When Buying a Home to Rent Out
Many first-time investors buy fixer-upper properties or at least ones that are priced low because sold as-is, and you’ll likely do the same. Just don’t be shy about negotiating a better deal simply because the property is already priced low.
Here’s what you should know about negotiating when buying a home to rent out: “Remember to negotiate. The seller’s asking price is usually not the price buyers end up paying. There’s definitely room for negotiation. You can definitely get the real estate property for a few thousand less with the right negotiation tips.” And most of the time that means relying on your agent’s negotiating expertise.
The process of buying a rental property is a different beast from buying a residential property to live in. For the assistance you need in buying a Los Angeles home to rent out, contact us today at 562-881-9811.