Posted in: Buying a home, Homeowner tips

Six things to keep in mind when buying your first rental property

person signing a rental contract

Key insights

  • While trendy new areas often have the highest rents, first-time landlords may want to select an area that has been a rental hotspot for a longer period of time.
  • Craigslist and other rental sites can help you research typical rates to charge and the available rental inventory, which can impact the amount you can earn on the property.
  • Being a landlord can help you earn “passive income,” but it’s also a legal process you should take seriously. Recognize early on how to stay in-bounds when it comes to owning and maintaining a rental property.

The rental market is hot, hot, hot, and many buyers may be ready to purchase their first investment or rental property. As you consider if the landlord life is right for you, keep these six insights in mind.

Consider a renter’s point-of-view when picking a location

As an investment property owner, be sure to view the market through a renter’s eyes, not your own. The first small step is to think not where you would like to live, but where renters are inclined to congregate.

Try to forecast long-term interest

It’s a tight rental market and many neighborhoods are becoming surprise hot spots for renters. While it can be tempting to focus on the trendiest new area, don’t forget to consider the long-term likelihood of an area’s popularity.

Apartments or homes closer to the city or a local college may be more stable than a small, up-and-coming pocket that is farther from the action. As a first-time landlord, choosing an area with low risk and likely longevity will help you stay profitable even when the rental market goes through its next downswing.

Leverage Craigslist to find a smart buy

The key to making a profit as a landlord is, of course, to select a property where you can charge more than the mortgage and assumed maintenance fees each month.

As you start to narrow your search to certain areas, use Craigslist or other rental sites to research the going rates for apartments or rental houses nearby. Make sure that the typical rates are less than your assumed mortgage payment and upkeep.

Last, pay attention to apartments that are rented quickly. By following these inventory patterns, you can make assumptions about which properties are in the highest demand. In some areas, brand-new two-bedrooms may be in short supply while in others, a slightly outdated studio apartment may be the perfect fit for entry level professionals who work down the road.

Know your legal obligations

In theory, being a landlord is a great way to earn extra income. In reality, you’ll find that there are numerous legal obligations you have to your tenants. As the property owner, you’ll have to keep the unit fit to live in and up to safety codes, and you’ll have to navigate specifics related to the utilities you’ll offer and even the maintenance staff you hire to work in the unit.

The best resource for new landlords is the Minnesota Attorney General handbook that outlines a landlord’s responsibilities and the tenants’ rights. You can review the handbook online or download a printable PDF so you are fully informed of how to proceed when searching for and housing tenants.

Focus on the financing

There are many lending factors to consider when purchasing a second home. When you know in advance that you’ll be renting out your second property, be sure to be upfront with your lender about your intended rental income. Some mortgage loan officers may be less likely to approve a loan intended for a first-time investment property owner, so be sure to bring your rental plan and research to show that you are prepared to be a landlord who takes the job seriously.

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Status Definitions

For sale: Properties which are available for showings and purchase

Active contingent: Properties which are available for showing but are under contract with another buyer

Pending: Properties which are under contract with a buyer and are no longer available for showings

Sold: Properties on which the sale has closed.

Coming soon: Properties which will be on the market soon and are not available for showings.

Contingent and Pending statuses may not be available for all listings