Interested in becoming a landlord? Buying a residential property and renting it out to locals or vacationers can be a useful way of earning extra income. However, if you are a beginner, use this guide to help you make the smartest investment possible so you can increase your return. 

How to Purchase a Residential Property to Rent Out

1. Pay Down Debt

Having a lot of personal debt can make owning and maintaining a rental house difficult—since the income from your rental property will likely not be as steady as the loan payments you have to make. For example, you might have a lull between tenents. If you had come to rely on the rent money, this can cause you to miss a loan payment and earn extra fees. You also need to keep some of the rent you make to pay for fixes and upgrades.

Therefore, wait until you have most or all of your debt cleared to purchase additional property. To speed up this process, you could try renting out a room in your home, selling valuable belongings, or finding ways to cut personal spending.

2. Get Preapproved

Before touring properties, get preapproved for a mortgage. The lender will pull your credit and review your claimed income, assets, and financial situation. They’ll then estimate how much you’ll be able to borrow and what the expected interest rate and monthly payments will be. 

Having this information prevents you from setting your sights too high. It also provides sellers with proof that you can afford their property. Finally, you’ll gain a realistic idea of how much money you’ll need for the down payment, which tends to run between 15 and 35 percent of the purchase price depending on your credit history.

3. Research Locations

Where your rental property is located will determine the price you can charge for rent, as well as how much you will have to pay for property taxes. It will also affect the number of potential renters available to you. 

As a new landlord, pick a high-demand area near a local college or the shopping or job district. Additionally, research projected growth in the neighborhood; you want to invest in an area that is on the rise. 

Depending on how close the property is to your residence will also help you decide whether to manage the place directly or hire a management company. If you live locally but aren’t handy, research companies that can help you with any plumbing or electrical needs that may arise.

When looking for homes for sale to turn into rental properties, turn to SWE Homes in Houston, TX. This Residential Mortgage Loan Originator offers a large selection of commercial and residential properties for sale in Texas and Georgia. Their owner financing makes it easy for anyone, no matter their credit score, to purchase real estate. Call (713) 413-1000 to schedule an appointment, and visit their website to learn more about their financing options.