Buying your first rental property can be daunting, especially if you’re unsure how to get started or what it will take.
You probably already know that real estate is one of the best ways to grow your wealth, but buying and maintaining those properties takes time, patience, and not a tiny bit of knowledge. As I mentioned, daunting!
Well, In this article, we’re going to take this scary and overwhelming process and simplify it so you know exactly how to get started on buying your first rental property.
Also Read: Best 5 Side Hustles With Your Car To Make Money
If you’ve never bought a house, you’re in the right place to get your feet wet. Are you ready? Let’s go!
Do Your Due Diligence Before Buying First Rental Property
The first step is to work out a few details.
- What sort of property are you looking to buy?
- What is your situation?
- Where do you want to live, and how much money do you have for a down payment?
- Also, How much time are you willing to spend looking at properties, and are there any constraints on how you might borrow or leverage funds?
A duplex or triplex is a popular option for many people starting with their first property. It allows you to live in one unit while renting out the other, drastically reducing your monthly costs.
In effect, your renter is paying for your property — or at least for a good chunk of it. So, let’s presume you’ve done your due diligence and found the right place to fit your situation.
Also Read: The 5 Habits Of Millionaires That Made Them Wealthy
Of course, I don’t know your situation, so I can’t give you any specific recommendations here, but I think the duplex idea is pretty famous for a reason — it works!
The Best Methods To Buy Your First Rental Property
Let’s talk about your time, specifically how time is your most valuable thing. Without it, your options become more limited.
#1. Talk To A Lender
So, the first thing I would do is talk to a lender. This way, you’ll know what you can qualify for, so you don’t waste time looking at properties that are out of your price range.
Plus, if you’re pre-qualified, you don’t have to scramble at the last minute because you know your funding is already secured.
Most places have multiple people bidding on them, and if you can be first with the offer and have the money ready to go, that can give you a leg up on the competition—timeliness matters. The faster you are, the better deal you can get.
#2. Look At Properties
Second, it is time to look at properties once your lending is secured. And this can be the fun part. Everything that is in your price range is worth checking out.
It might mean driving around and looking at properties. Or you might go on tour with some realtors who will take you through their available properties.
It could also mean talking to friends and family about what they’d want in a home or even just walking around your neighborhood and taking mental notes about what might be up your alley.
Also Read: 8 Simple Steps To Start A Small Business Right Now
Keep your eyes open, and you might be surprised by what you notice with available properties that you might not have seen just a few weeks earlier.
#3. Determine The Cash Flow Of The Property
Third, you will need to determine the cash flow of the property. It is the most crucial aspect of buying an investment property. It helps you determine whether or not it is a good investment.
In reality, 95% of properties don’t make sense to purchase for an investment. They actually will lose you money. Any property could be a good investment at a specific price, but it doesn’t mean that is the price you’re paying.
It is imperative to understand the numbers. And much of it depends on how much you have to invest. Naturally, the more capital you have in reserve, the more leverage you’ll have when negotiating with sellers and buying new properties.
And, if you have no money, then it’s hard to make any deals happen. No sales on the property mean you can’t get financing. Or maybe the renovation costs are too high.
Also Read: 5 Side Hustle Websites To Make $1000 Per Day Online
It might not be the right time for you with a particular home, so it’s best to let it go and release it back to the market. It may be better suited to someone with cash reserves, making this a better deal.
#4. Start Making Offers On Properties
The fourth thing to do is to start making offers on properties. It probably seems obvious, but believe it or not, many people are afraid of this part, or they don’t do it.
Making an offer doesn’t mean you are stuck with the property. It is a way to express your interest and that you would like to explore the opportunity further.
How Do You Know When To Make A Real Estate Offer?
Well, it’s not quite as simple as just seeing something and offering a price. I think of three parts to How To Make Offers On Properties:
#1 Figure Out What The Property Is Worth?
First, Determine what the property is worth by looking at other similar properties or houses in your area. These are called “Comparables.”
You could ask for an appraisal if you have time, but it’s better to get an idea of what it would cost to buy before you start negotiating with sellers.
Check out sites like “Zillow” or “Trulia” to see what similar houses have sold to get an idea of a reasonable price.
#2 Look At The Neighborhood
Second, look at the neighborhood where the potential property location is.
- Is it nice?
- Are there any bad areas nearby?
- What type of school system does it have?
- How many people live there?
These questions will help you decide if this is the right place for investment.
#3 Check If The Property Meets All Your Needs
Third, consider whether or not this particular property meets all of your needs. If so,
- How much will it cost to renovate it to how you need it?
- Does it need a paint job?
- Do you require a New roof?
- And does it have perfect Landscaping?
All these factors determine whether you want to make an offer.
#5. Inspect The Property
So after you’ve made your offer, What is next? The last part of the process is ensuring you inspect the property. It isn’t just you going through and looking at things. You will want a professional to look at the house to determine if there are any issues.
These property evaluations are often a part of the process, and many sales are contingent upon the result of the inspection.
Have your inspector check the roof, the foundation, the electrical system, the plumbing, and everything else they can. The more you know, the better your position.
Also Read: 10 Small Businesses You Can Start In The Recession
It doesn’t help if you get a killer deal on the house, but the foundation and electrical system repairs will double your overall costs. Knowledge, in this case, is power.
Conclusion
It’s true—when you’re starting as a landlord, it can be tempting to feel overwhelmed by the prospect of buying your first rental property.
It’s a huge responsibility—and it can be hard to know where to start. Luckily, there are tons of resources out there that can help you start down the path of owning your rental properties.
And while properties are a great option as an investment vehicle, you may find them hard to start with. In that case, I’d recommend investing in the stock market. Specifically, look at Index funds.
Also Read: The 3 Index Funds To Invest In For Long Run
They are one of the most stable and secure forms of investing you can find, and I gave you all the details in the previous article. So don’t forget to check it out.
