Investors in rental properties often need a down payment of between 15% and 25% of the total purchase price. Being a landlord calls for a diverse set of abilities, from familiarity with tenant law to the ability to fix a dripping sink.

An investor who prefers to sit back and reap the rewards of real estate might hire a property manager or put their money into real estate investment trusts (REITs). House hunting and renovations take up a substantial portion of a full-time investor's week.

Vacation rentals, multi-family, and single-family homes are all viable options for investors. To hear everything you need to know to invest in rental properties, press play.

Let's Hear It for Landlord Ambition!

Investment property ownership and management can be lucrative, but only if one is willing to devote time and resources to the endeavor. After making the right property selection, preparing the unit, and renting to responsible tenants, routine maintenance is still to consider.

The price of repairs and maintenance could impact the amount you collect in rent. An unexpected event, such as roof damage, is always a possibility. Investors should set ten percent of the property's value aside annually for maintenance.

Owners of rental properties can manage the property themselves or hire a property manager for a fee of 8% to 12% of the annual rents collected. Although expensive, a property manager can handle various issues, such as tenant screening, repairs, and late rent payments.

In addition, landlords should be familiar with the local and state regulations that apply to their relationship with tenants. Security deposits, lease provisions, eviction procedures, and fair housing regulations create rights and responsibilities for tenants and landlords.

Acquisition of Rental Property

Potential investment opportunities can be found in cities and areas where the population and the revitalization plan are increasing. More people may be looking for rental properties in an area with favorable demographics like low crime, convenient public transportation, and a burgeoning job market.

Look for a location with low property taxes, a good school district, and a variety of amenities like dining establishments, coffee shops, stores, trails, and parks when selecting a rental property.

Rental rates and current investment property values are just two pieces of information that investors can find on online real estate property sites like Zillow.com. For those interested in buying vacation homes or condos, Airbnb.com lists the current market rental rates.

A Guide to Obtaining a Mortgage for Your Investment Property

To a large extent, securing a mortgage for an investment property is similar to securing a mortgage for a primary residence. Lenders typically charge higher interest rates on rental properties due to the higher default rates on rental property loans. An investor can apply for a conventional mortgage loan, an FHA loan, or a VA loan, depending on their circumstances.

Tenant applicants may face more stringent underwriting standards. Although the same considerations—credit score, down payment, and debt-to-income ratio—apply to mortgages on investment properties, the borrower is likely to be subject to stricter credit score, DTI threshold, and minimum down payment requirements.

A credit score of 620 or higher is required, with better interest rates and terms available at higher scores. Conventional mortgages for primary residences often only require a 3% down payment, but those for investment properties typically require a 15%-25% down payment.

Debt-to-income ratio (DTI) is the proportion of a borrower's monthly income spent on debt payments. You can usually use up to 75% of your projected rental income toward your DTI with most lenders.

Three to six months of principal, interest, tax, and insurance payments should be saved before applying for a mortgage loan. The discrimination of borrowers in the mortgage lending process is unlawful. You can take action if you believe you have been the victim of discrimination based on your race, religion, sexual orientation, marital status, use of government assistance, national origin, disability, or age. One such action is to report the issue to the Consumer Financial Protection Bureau or the Department of Housing and Urban Development of the United States (HUD).

Profiting from Rentals

The gross income needed to cover operating costs for a brand-new rental property will range from 35% to 80%. With a monthly rent of $1,500 and monthly expenses of $600, the operating expenses as a percentage of revenue would be 40%. Investors commonly use the 50 percent rule. You can expect to spend around $1,000 monthly in addition to the $2,000 monthly rent.