Choosing Rentals that Make Sense: 3 No-Nonsense Tips

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For many investors, purchasing a property to rent out just makes sense. But finding properties that'll help you meet your long-term goals can be tricky. Whether you're considering a turnkey property or a property to rehab and rent yourself, keeping these tips in mind will help you weed out low-performers while you're hunting for a solid investment.

Tip 1: Run the Numbers 

For experienced investors, this is probably a no-brainer. For beginners, it's a smart reminder. When you're seriously considering any property, you need a solid expectation of the expenses associated with the property:

• How much your mortgage will cost 
• How much you'll pay in property tax and insurance 
• Fees charged by a property management firm, if applicable 
• HOA fees, if applicable 
• Vacancy and repair costs 

Compare those numbers with the amount you can expect to receive in rental income each month. Ideally, you'll receive more each month than you'll be spending on the property. In some cases, a property might be worth purchasing even if you aren't going to pocket money each month. That comes down to your long-term goals and the market where you live. 

Tip 2: Buy in A Market You Know 

Though sometimes the best markets are far from home, and we'll the last to discourage investors from looking outside their own county, it's vital to understand the area. Some examples: 

• College alumni might choose to buy near their alma mater
• Retired or active duty military might choose to buy an investment property near a military base
• Nurses might purchase an investment property catering to short-term nurses near their hospital 

If you're able to land an investment property in an area that caters to your niche, you'll already have valuable insight and an "in" when it comes to renting it out and understanding the real estate market in the area. Use your insight to give you an edge. 

Tip 3: Consider a Small Multi-Unit Property 

By purchasing a duplex, triplex, or quad you can live in, you can take advantage of an FHA mortgage--with its low down payment and interest rates--and secure a primary residence as well as a rental property (or two, or three). Although this type of investment can require more hassle, more tenant screenings, and more time in managing tenants and repairs, it can be a solid place to begin an investment portfolio.