If you like the idea of investing in something you can touch and feel, buying a rental property can be an attractive option. The key, experts say, is purchasing the right place up front. Here are some tips on locating a good rental and sizing it up.
Buy in a desirable location. Good schools, low crime rates and nearby amenities like parks and shopping all matter in a real estate search. Some experts suggest limiting your search to properties near your home (say, a 20-minute drive) so you can keep ties with tenants and respond quickly in case of emergencies. Wherever you search, look into local vacancy rates and rental prices for comparable properties, and ask whether any new apartment buildings are in the works.
Consider landlord laws. Being a landlord means being up to speed on all applicable laws, from federal fair housing laws to local ordinances that may dictate regulations like minimum square footage or ceiling height for bedrooms. If you're buying into an association, consider those rules as well. Many condos, for instance, cap the number of units that can be rented at any given time.
Total your expenses. Think beyond the mortgage. Tally up real estate taxes, association fees, the cost of finding tenants, and your insurance and maintenance outlays. Save about one to three percent of the value of your rental property for upkeep each year. The goal, of course, is finding a property where the rent exceeds your costs, but you'll still need a plan for carrying the expenses yourself in the event of a vacancy.
Inspect the property. If you're the DIY type, then by all means, consider a fixer-upper. Otherwise, look for a newer or recently renovated property that won't take too much effort to maintain. A home inspector can help identify structural or safety issues and may help you assess the condition of related factors too -- for instance, when the condo unit is in great shape, but the building roof needs repair. A detailed inspection can save you an extra outlay of cash down the road.