1. Selecting a Location.

   The old cliché “location, location, location” may seem worn out and overused, but it remains a prime consideration when selecting a rental property in which to invest, especially if you plan for it to be a long-term investment (and steady stream of income). A property’s location should make sense financially and attract the right kind of tenants. In order to choose the right property, it can be helpful to imagine the type of tenant you want to attract (whether commercial or residential). Once you identify the qualities you desire in potential tenants (which does not mean that these will necessarily be the only tenants who will rent from you), then decisions about location, property type, improvements, and advertising become much easier.

2. Crunching the Numbers.

   Understanding the numbers to better evaluate various properties is the next big hurdle. There are two aspects to crunching the numbers: obtaining the right numbers and verifying those numbers. A key factor in conducting any evaluation is making sure you get the information you need (such as taxes, utilities (if you will be responsible for them), current rents, market rents for the area, and vacancy rates). Oftentimes, these numbers will come directly from the seller. In such instances, it is important to verify that the numbers are accurate and up-to-date so that you can be certain that the deal is as good as you think it is.

3. Asking Questions.

In order to determine whether a “good on paper” deal is actually a quality rental property to purchase, there are additional items you should consider before sealing the deal:

a. Current Leases. You need to get copies of current leases as you will be expected to uphold them when you take over the property.

b. Outstanding Maintenance Issues. If the current owner has deferred maintenance repairs or necessary improvements, then what appears to be a good deal based on the “as is” numbers can quickly become a costly investment rather than a profitable one.

c. Utilities. Knowing whether the utilities for the property are paid by the tenants or the owner can make a big difference in how profitable a rental property actually is.

d. Rents. Raising rents can seem like a great way to increase a property’s cash-flow capabilities, but it’s important that you are aware of both market rent and the condition of comparable properties so that you can establish rents that will produce income without losing quality tenants.

e. Property management. It’s important that you include the costs associated with managing the property (whether by yourself or through a management company) in your calculations. If the current owner is managing the property by himself or herself, then these costs might not be in the numbers for the property, but that doesn’t eliminate them as a cost.

If you are considering purchasing a rental property (regardless of whether it is your first), a hard money loan can help you take full advantage of a good opportunity. Hard money loans are faster and involve a lot less red tape than conventional bank loans. In addition, private lenders do not have to consider your global financial picture as Federal regulations now require banks and other institutional lenders to do. It is often much easier to get an investment-purpose residential or multifamily hard money loan approved because hard money lenders employ asset-based underwriting policies rather than credit-based ones. This is especially true of loans secured by rental properties that are in need of improvements. For more information, contact Montegra at (303) 377-4181 or submit a loan request online today.