As the number of renters in the U.S. continues to climb, many people are intrigued by the passive income opportunities that coincide with owning a rental property. According to Statista data, in 2020, there were 14.1 million households and 42 million residents) renting single-family houses in the U.S.
In this article, we’ll discuss how to take advantage of the Western Colorado realty market and buy a rental property in five steps.
1. Have a Plan For Financing
Financing for rental properties is more stringent than financing for your first home or primary residence. Typically, lenders require bigger down payments and charge higher interest rates and fees. Here’s a typical breakdown of what you’ll need, but it varies by lender.
20-25% down payment.
A credit score of at least 720.
Tax returns, bank statements, and proof of income.
Some lenders want six months of mortgage payments in a reserve account.
2. Understand Performance Metrics
When looking at Colorado homes for sale, you must remember that the potential rental income is not what you’ll be putting in your pocket every month. To estimate your income, you must subtract from that amount your operating expenses, interest payments, HOA fees, property taxes, and budget for emergencies. To ensure you account for these expenses, you should be able to rent the property for at least 1% of the purchase price.
3. Select a Growing and Affordable Market
A critical factor in your rental property’s success is selecting a real estate market that’s growing and appreciating, aligns with your cash flow needs, and supports your budget. For example, the Western Colorado realty market offers ample opportunities for first-time rental property buyers. Some perks include:
Job and population growth.
A growing percentage of renter-occupied households.
Healthy seasonal and short-term rental market.
Low property tax rate.
Low probability of natural disasters.
4. Assemble a Team
Next, you’ll want to assemble a team of professionals experienced in rental property ownership. To get the best rate and loan options, you should seek a mortgage lender specializing in second homes. Furthermore, you’ll need an experienced local real estate agent who can point you in the right direction toward up-and-coming neighborhoods, short-term rental opportunities, and properties that will provide a good ROI. Finally, after settling the transaction, you may want to contact a financial advisor and a property manager to ensure everything runs smoothly.
5. Track Profitability and Know When You’re Ready to Make a Change
A long-term view is critical when investing in real estate. Whether your rental property isn’t as profitable as you imagined or you’ve made enough money to invest in something better, you should always look for new investment opportunities. You can use 1031 exchanges and other real estate tax strategies to continually grow your portfolio and trade up to the best opportunities and real estate markets.
If you’re interested in purchasing a rental property in 2023 and taking advantage of the Western Colorado realty market, contact me at 970-209-2378 or jenthomas1515@gmail.com. As a real estate broker and investor, I can help you do the most with your investment.