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Many investors are now finding that rental property can be an excellent way to create wealth. If you are considering getting involved in rental property investing, it is a good idea to educate yourself as much as possible. First, you need to find out what it takes to become qualified to purchase investment property because it is actually somewhat different than becoming qualified to purchase a regular home.

A common idea for this is the fact that a significant number of investors either walked away from properties or declared bankruptcy during the early 1990s. While you should certainly not be punished for someone elses problems, neither do lenders want to be left holding investment properties. Therefore, it is important to understand that the requirements for being approved for a mortgage on rental properties are somewhat different from what you are used to.

While a home can often be purchased with a minimum down payment, especially if you are a first-time home buyer this is often not the case with rental property. Many lenders require a minimum down payment of 15%.

Fortunately there are many different sources you can tap into for possible financing. These options include: Mortgage broker Local savings and loan or bank Private lender FHA; which stands for Federal Housing Association.

Regardless of which option you choose, you will find that most lenders will want to be assured that you will have a sufficient amount of rental income in order to cover not only the mortgage payment but also other expenses such as insurance, taxes and maintenance. Depending on the amount of income that will be provided from the property, some lenders may require a larger down payment.

There are also different types of loans which you can use to finance the purchase of a rental property. One option would be a residential loan. This type of loan can be used to purchase from one to four units. The exact options that are open to you often depend on whether the property will be owner occupied.

Another popular option is a commercial loan. This is an option when the property is five units or more or it will be non-owner occupied. Due to the fact that it is a commercial loan, it is often far different from a residential loan in regards to terms and requirements. One of the main differences between a commercial loan and a residential loan is the fact that fees and rates are frequently higher this kind of a loan.

Very often a larger down payment is also often required. The down payment on a commercial loan typically runs between 25% and 35%. While there are some lenders who may be willing to agree to a higher loan to value ratio; the requirements for qualifying for such loans are usually many times tougher to get.

Owners should also carefully examine the ability of the property to generate a cash flow that will allow you to repay your loan. As a result, the lender will typically examine the property to ensure it can provide an income that will not only allow you to cover the mortgage payments and other expenses but also provide enough of a cash flow that you will have additional income to do other things with.

PPL or private party lending is another option for many prospective investors. One option would be to approach the current owner about seller financing. With this option the owner carries back the loan for a down payment and fair interest rate. You may find that you can save lending fees with the options and may also be able to take advantage of making a much lower down payment.

Another option would be what is known as a hard-money loan. This is a type of short-term financing where a third-party makes a loan to assist the investor with purchasing the property. Generally, this type of loan involves a higher interest rate due to the fact that the buyer has poor credit or because the property is in disrepair and requires extensive renovation.

FHA programs are frequently offered through traditional lenders. Keep in mind; however, that FHA does not actually lend money. They do provide insurance for lenders; offering numerous loan programs. Regardless of which financing tool you choose, remember that there is always the option to refinance at some later point in order to obtain a better rate and terms.

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Tenant selection criteria can be one of the most confusing areas of operating rental property for many people. On one hand, you want to make sure you choose the most responsible tenant possible; a tenant who will pay his or her rent on time and one who can be relied upon not to tear apart your property.

At the same time you must make sure that you abide by fair housing laws. Before you actually begin renting out your property it is a good idea to sit down and determine the criteria you will use to pick that best tenant.

Without guidelines you will have no choice but to rely on your instinct to choose the best tenant and this could result in trouble if you are only relying on your feelings to make a tenant selection. One of the worst risks you can take is to let your own personal opinions and biases guide you in your decision because this could open the door for a discrimination lawsuit.

You should always make sure that you notify prospective tenants that you utilize a fair system to make your decision. Ideally, it is best to include this type of statement on all rental applications. For example, you might state Our policy is to rent our units in compliance with federal, state and and all appropriate fair housing laws.

If you are fairly new to operating investment rental property, you may not be cognizant of fair housing laws. Be sure to consult your states fair housing office to determine those guidelines which you must follow.

Above and beyond fair housing laws, it is important to make sure you establish criteria that is concrete by which to judge all potential applicants. For example, it is common to require that the applicant provide identification that is verifiable. You may require the applicant to present a photo ID with their application so that you can copy of it.

It’s good to get this type of requirement because you may need it in the future in the event you need to describe adult occupants of the unit. If someone co-signs the application, it is also a good idea to obtain identification for them too.

You should also consider to require information which would help you to determine that the applicant has a sufficient income to rent ratio. If the applicant were applying for a loan to purchase a home, the lender would ask for and get similar information.

The great rule of thumb is to identify applicants that have a gross monthly income that is three times the amount of the rent. One way to document this information is by requesting copies of the applicants pay stubs along with processing their application.

Especially if the applicant is self-employed, you might ask them to provide their last tax return in addition to three months of bank statements. If you cannot verify the applicants income, this would be a perfectly legitimate reason to deny their application as you have no assurance that they will pay their rent.

Many property managers and landlords also check credit ratings and scores on applicants as well. The purpose of this is to verify the financial responsibility of the applicant. The general guideline is to obtain a credit report on all applicants as well as any co-signers who are over the age of 18. Keep in mind that you will need to receive permission to run a credit report; however, you can request this information on the rental application.

Applicants with low credit scores could be legitimately denied on the basis on being unable to prove financial responsibility. In addition, you should check references. Typically, you should ask all applicants to provide the names and telephone numbers of individuals who can verify the applicants income sources as well as character references.

Finally, make sure you follow-up to check that the applicant has been able to successfully rent a dwelling in the past and paid their rent on time. In the event an applicant is unable to meet this requirement but does meet all other requirements you may consider requiring the applicant to have a co-signer.

If the thought of profiting greatly in the wide world of real estate investing excites you, then you ought download Davids free guide and Free Real Estate Course. To find out the safest and best profitable methods visit Davids website Real Estate Investing.

Technorati Tags: Foreclosures, investing, no money down property, real estate investing, work from home