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HomePropertyProperty Investments6 things to research before purchasing an investment rental property

6 things to research before purchasing an investment rental property

If you’re looking to purchase an investment property to rent out to tenants, the buying process is a little different than purchasing your own home. You’ll need to think like a business owner and operator and understand your area’s local laws and regulations governing rental properties and tenant rights. Some landlords are opting to get out of the business due to recent changes in the way rental properties work, but there are still ways you can make money in this business if you know what you’re getting into. Here are six things to understand before buying a rental property.

1. New Lending Requirements

Today, many landlords are finding problems qualifying for a mortgage due to recent changes in lending requirements from banks and other financial institutions. Lenders now require more financial checks before approving loans. Some aspiring property owners won’t be able to meet the requirements to get a loan, and they’ll have to look for another way to excel in this business. Existing property owners may have to cut back on some of their investments to keep going.

2. Energy Efficiency Rating

Another thing to understand before buying that rental property is how it stands up to the new energy efficiency regulations put into effect. The government wants to help improve the country’s ability to conserve natural resources and improve energy usage. These new regulations mean some property owners will need to unload homes that don’t meet the standard. Instead of buying a new property, it may make more sense selling rental property buildings that don’t meet the energy standards.

3. Tax Implications for Mortgage Interest

Rental properties also may qualify for tax relief depending on the amount of interest you pay each year on the mortgage. In the past, this relief has helped investors recoup some of their expenses. Now, this tax relief may not be a guarantee. Changes have been instituted in the way taxes will be calculated for investment property owners. Some property owners won’t be impacted very much, so it’s important to understand what your tax bill will be if you add the property to your portfolio.

4. Cost of Upkeep and Expenses

The next thing to know about before going through with an investment property purchase is how much the home requires in upkeep and expenses. If the property has a previous history of being rented out, ask to look at the receipts from the former owner to get an idea of what your financial situation will look like if you buy.

5. Neighborhood Rental Market Conditions

The property’s neighborhood also makes a big difference between a landlord making a profit or losing money each month. Choose a property that is characteristic of the neighborhood when it comes to design and price to get best results. If you make a mistake and purchase the most expensive house in a low-income neighborhood, it may be wise to get advice from someone to help you sell buy-to-let properties. An unusually expensive house for rent in a bad neighborhood may not attract suitable tenants, and unloading the property may make better financial sense.

6. Landlord Procedures

The last important thing to understand before buying a rental property is the area’s landlord and tenant procedures. Some regions may have strict laws governing how properties are leased and how landlords can screen potential tenants. Being ignorant of these procedures can cost you a big chunk of your future profits.

While there are many challenges to finding the right property, if you do your due research and educate yourself about this business, you can find success. Be sure to have a complete understanding of the rental property and the financial implications of buying it before completing your purchase.

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