One of the best ways to begin accumulating long-term wealth is by owning a rental property. A good rental property investment can provide you a passive income that can act as your retirement plan’s backbone.
However, the key is finding the right property. Not all properties are created equal. Some can be money making machines, while others can turn out to be money pits.
Buying an investment property is a huge financial undertaking; hence, it pays to do your homework. For this reason, we are sharing through this article 7 pro tips for buying your first rental property.
Have a plan.
As with any other investment, planning is key when buying your first investment property. A plan is a success recipe. Prior to getting too far, lay a blueprint on the things that you want to do and how you intend to do it.
Ask yourself the following questions:
- Should I hire a professional property manager?
To answer this question, you need to check your time availability, expected cash flow, and check your budget.
- What type of investment property should I buy?
There are condominiums, townhouses, multi-family homes, single-family homes, and so on.
- How will I finance the investment property?
If you don’t have the cash needed, then you need a mortgage. Do your research and get one that meets your needs.
- Where should I buy an investment property?
In real estate, location is everything. It determines the price of rent, cash flow, appreciation rate, and expenses.
- How much do I know about real estate?
Of course, a college degree is not a requirement to invest in real estate. However, knowing a thing or two about real estate is definitely helpful. You need to familiarize yourself with things like investment property financing options, real estate investing strategies, different types of investment properties, and so on.
Get the right financing and cash flow.
The right financing option can make the difference between being saddled with a mortgage you don’t want to have or having money to buy an additional property every year.
As for cash flow, you need to know all of your costs. As a general rule of thumb, expenses will take about 20% of your rental income.
Consider hiring a real estate agent.
Obviously, as with any other purchase, you want to get the best deal possible. When it comes to property investing, a dollar spent equals fewer monthly cash flow. Thus, it is necessary that you get the best deal. That’s where a real estate agent comes in.
A competent agent will ensure that you get what you want. All you need to do is to remain patient. It’s better to wait a few weeks than to rush and regret later.
Know what will rent and for how much.
Check classifieds, call on ads, drive around, and talk to landlords. Act like a prospecting tenant looking for a place to rent. Your goal is to know what the prevailing rent is for the type of property you are interested in.
Also, take note of the vacancy rate. Are too many properties vacant? If so, it’s a sign of trouble. It means that there are more housing units available for rent than people need. In turn, it means that the rental prices are low. In cases like this, it would be best for you to find another place to invest on.
Buy a move-in ready home.
While it’s tempting to buy a low-cost property, make the necessary repairs and then flip it for a profit afterward. But, the catch is that these properties typically need major repairs.
Unless you are skilled at large-scale home improvements – or you have a contractor who does quality work on the cheap – you are likely to overpay on renovations.
Move-in ready homes, on the other hand, as the name implies, are ready when you are. When you purchase one, the next step is to find tenants to occupy it.
Buy in the right location.
As a real estate agents’ mantra says: location, location, location. Location can make the difference between a property turning a huge profit and a property barely outperforming inflation.
With this in mind, what should you look for when searching for a good location? Look for an area with a growing job market, a neighborhood with low crime rates, a decent school district, low property taxes and an area with plenty of amenities like movie theaters, restaurants, malls, and parks.
Get a low-cost home.
Lastly, avoid expensive properties. Usually, the more expensive it is, the higher the outgoing costs will be. As a beginner, start with a $150,000 rental property.
Entering the real estate investing business is definitely one of the best ways to make money. But, to succeed, you need to know what you are getting yourself into. Hopefully, this article has helped you in this regard.