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Are You Ready to Be A Landlord?

Think rental property might make a good investment? It can -- if you choose wisely!

Just as with any real estate purchase, location counts! Your best bet for a solid rental property will probably be in an established, high-demand rental area, with easy access to schools, universities, shopping, and other amenities. Avoid "white elephant" buildings with an unusual design or location, or isolated units stuck out in the boondocks. Look for a location that you would find attractive if you were renting.

Once you select a general area, you'll need to decide whether you prefer single-family homes or multi-unit apartments. Both can make good rental properties, though there are some important differences. Single-family houses are often in shorter supply as rentals. And because they're more desirable from a tenant's standpoint, they generally command a higher rent per square foot than apartments. A single-family home will also have a broader resale appeal when it comes time to sell. But it will be harder to buy a single-family residence at a price that allows you to break even or generate a positive cash flow unless you're prepared to invest a hefty amount down.

Multi-unit apartment buildings, by comparison, may experience a somewhat higher turnover rate than a single-family house. But they are often priced to allow you to generate a close-to-break-even cash flow with a smaller down payment.

Thinking seriously about a particular property? Run the numbers carefully before you decide to buy. Ask the seller for information about the building's vacancy rate over the last 2-3 years, and factor in anticipated vacancies when you estimate cash flow. Be sure to include a reasonable allowance for maintenance. Copies of recent maintenance records can tell you not only what has been done to the building lately but also what hasn't.

TIP: For multi-unit buildings, make sure you're given the opportunity to inspect all units personally before closing, not just a "representative" apartment.

TIP: During the walk-through, ask the current tenants if any repairs need to be done to their unit, and listen to any complaints about maintenance. Unless they're fixed before closing, these are things you can expect to hear about later!

TIP: Looking for a bargain? Chat with a realtor whose office also handles rental property management. They may know of owners anxious to unload a rental at a discount price!