Written by Scott Russell, Owner of Freestone Properties in Asheville, NC
As the leading real estate agent of Freestone Properties in Asheville, NC, I’ve come to learn quite a bit about the buying process when it comes to purchasing rental properties.
If you’re looking to buy a rental property, you first need to understand the expenses associated with the purchase, the property itself, and the tenants you’ll be renting to.
As a future landlord, managing your expenses and keeping your rental property in tip-top condition is essential for rental success. Having a clear idea of the rental property you’re interested in will help you plan accordingly.
Be sure to obtain answers to the following key questions before purchasing a rental property.
Questions About Expenses
Real estate investments are about making a profit, which is how we advise our Asheville vacation/investment home clients, for example. So, you first need to understand the expenses behind a rental property purchase.
What are the ongoing expenses for maintenance, property management, etc.?
- What costs will you need to take care of every month and year?
- How expensive is basic property maintenance and upkeep for the building, home, and/or yard?
- What do the property’s taxes look like each year?
Make sure the real estate agent you work with can obtain all of this information for you. You can even hire an accountant to help you sort through your finances to ensure the rental property you’re interested in is a proper investment.
What are the expected capital expenses and necessary reserves for larger repairs (new roof, HVAC, etc.)?
Being a landlord requires upkeep. When the rental property is inspected, you are expected to take care of all of the necessary repairs in a timely manner so that your tenants are safe, protected, and living in a hazard-free environment.
This includes costs associated with roof repairs, HVAC repairs, water damage, flooding, piping issues, electrical work, and more. You must be prepared for tenants to contact you with these types of issues, and you should also have a list of contacts ready to call for assistance.
Questions About the Property
Before purchasing a rental property, you need to obtain records of all its past upgrades, repairs, and improvements. You don’t want to invest in a property that’ll require constant and costly upkeep due to negligence, age, and/or damage from past tenants.
What are the recent upgrades, repairs, and improvements?
Obtaining these records is also key because you’ll see how well the property is currently managed. Have there been several costly upgrades because the landlord is lazy? Was an issue misdiagnosed?
Having this important information at your fingertips will help you make a smart financial decision regarding your rental property endeavors. You’ll be able to determine whether a property is worth the trouble or if passing is the best option.
What known issues are there that need to be addressed?
This question is highly important because it determines the quality of the rental property you’re interested in and how much money and time you’ll have to invest to make it a livable space for tenants.
For example, if you’re looking at a rental property that requires a hefty sum to repair or replace something, such as new roof installation, major electrical work, or extensive pest control solutions, it’s best to know that information ahead of time so you can determine whether the investment is worth it.
Questions About Tenants
If you’re buying a rental property with inherited tenants, you’ll want to be sure to ask questions about the stipulations of that too.
What are the terms and lengths of the current leases? Are tenants month-to-month?
It’s also important to learn about the current lease(s). If you’re looking to buy a rental property with several apartments and tenants, you’ll need all of the information for each tenant, including tenant history and the terms and lengths of each lease.
Perhaps there are tenants with month-to-month leases, and you’re more interested in longer-term leases. You’ll need the proper information to see what will work best for you as a landlord moving forward.
Have background and credit checks been done on the current tenants?
Part of the tenant history you’ll need to obtain before buying a rental property includes financial and personal information. Are the current tenants financially responsible?
You’ll want to know how the previous landlord acquired the current tenants before purchasing the rental property you’re interested in. You don’t want to be stuck managing a property with unreliable tenants.
Questions to Ask When Buying a Rental Property
There you have it! It can be scary when you’re first looking to get started investing in real estate. Knowing which questions to ask when buying a rental property can be difficult if you’ve never done it before!
However, this article has provided a great jumpstart of initial questions to ask when buying a rental property:
- What are the ongoing expenses for maintenance, property management, etc.?
- What are the expected capital expenses and necessary reserves for larger repairs (new roof, HVAC, etc.)?
- What are the recent upgrades, repairs, and improvements?
- What known issues are there that need to be addressed?
- What are the terms and lengths of the current leases? Are tenants month-to-month?
- Have background and credit checks been done on the current tenants?