How do I start investing in rental properties?  Foreclosures, short sales, motivated home sellers,  high inventories and low interest rates have created many opportunities for investors to find great real estate deals.  Here are some things to consider:

1. Location - The ideal neighborhood for investors looking to buy rental property are lower-middle-class neighborhoods.  These homes will rent out the fatest because of demand.  Avoid areas with run down homes, gang graffiti or a lot of street commotion because you may not get the appreciation, rental or value needed out of that property. Concentrate on well maintained neighborhoods with mostly three bedrooms, two bath homes, good public schools and accessible transportation.

2. Condition -  Look for homes with minimal repairs because the sooner you can get the home in rentable condition, the sooner you can start making money on the home.  Newer homes that are less than ten years old are preferrable since most  of its systems will be current.  If considering an older home, make sure all major components (roofing, pluming, electrical & structural) have been updated.  If not, prepare to invest a lot of money on repairs.  The more work a property needs, the lower your offer should be.  If you decide to make an offer on a home that need  signifant repairs, make sure you have an option period which will allow you time to get the home inspected  and estimates for needed repairs.
 
3. Price - The price you pay should depend on comparable sales for the neighborhood and the condition of the property.  Check out both sales and rental comparables.  Make a list of needed repairs and estimated cost to repair.  Ideally, you want to get the property at arround 70 cents on the dollar.  If the numbers are not there then move on to another property or be prepared to hold on to the home for a few years. 

4. Financing -   These days investment property is a big risk for lenders because of the high default rates.  Do you have the required down payment and credit score needed?  For most conforming loan programs, you will need a minimum of 20% down payment and credit score of at least 680.  The entire down payment must be from your own funds. Most lenders will allow a maximum seller concession of up to 2%.   Borrowers may only own 4 properties including their primary residence.  Additionally, you will need six months reserves  and qualifying ratios arround 41%.  There are  “hard money” or private lenders that will finance investment property with 10% down. The interest rates are very high; therefore you should consider those only if you are sure that you can refinance or sell the property in a relatively short period of time.

Before buying your first investment property, do your homework. Review your credit scores and make sure you understand the numbers, including the cost of financing,  down payment, closing fees and repair costs.  Decide whether you can comfortably afford to make the mortgage payments while you find a buyer or a tenant.