21 Oct 5 Tips for Buying Your First Rental Property
The real estate industry can be difficult to get into due to its highly lucrative and risky aspects. It is important that you are familiar with the industry before jumping in to ensure that you will be able to obtain the ROI you are seeking.
Research is Key
There are many ways to gain knowledge about the real estate industry. Here are a few suggestions to get you started.
- Attend seminars
- Take classes
- Watch webinars
- Join real estate groups such as our Real Estate Investors meetup
- Read books
It is also crucial that you are knowledgeable about the various areas around your city and know the differences in each market. Factors such as a property’s location in relation to schools and shopping will affect desirability as well as the amount of crime in a particular neighborhood.
Consider a Property Management Company
You will need to determine your costs associated with managing your own properties or hiring someone to take care of them for you. Take into consideration that if you manage your own properties, you will be on call at all times and you have to take care of all problems. If you hire a property manager, it will obviously cost you, but they will take care of rent collection, accounting, maintenance, and tenant placement, etc. This will save you a lot of time and hassle, so you will have to decide what you really have time for and what is more important. A property management company will also bring experience and resources that you may not have. On average, property managers charge about 5-10 percent of a property’s monthly gross income.
Most people just starting out find that it is not financially feasible to put down thousands of dollars, so securing a mortgage is a good option. There are a few other less common options you can consider.
- Seller Financing: There are certain sellers that offer to finance. These are usually companies that buy and sell a large number of properties. The terms of the loan will be outlined in a promissory note including interest rate, schedule of repayment, and default remedies.
- Online Lenders: Typical lenders that are based online offer better interest rates than a traditional bank would. Some online lenders to consider include Quicken Loans, Lending Tree, and Rocket Mortgage.
- Crowdfunding: This involves joining a group of property investors. When a member of the group purchases real estate, the others can draw funds from the pooled money.
Search for a House that is Move-In Ready
In order to get a tenant in the house and paying rent quickly, you will need to find a house that is move-in ready. A house that needs to be rehabbed can be a good project later down the road when you already have steady rental income coming in from other properties. With a house that is move-in ready, there is a large capital tax gain and there is not any service tax involved.
Lock in Equity at Closing
Avoid purchasing properties at retail market value if possible. There are many property wholesalers that buy and sell large quantities of properties. These wholesalers find properties and then will sell them below retail so that they can move them quickly. Visit our investor’s page for more information and to be added to our wholesale list.