5 Steps to Investing in Your First Rental Property
According to a recent study from BiggerPockets, a well-known online community geared toward empowering new and active real estate investors, most investors are seeking long-term rental properties. Flipping houses came in second, followed by wholesaling and other commercial options. Yet, of the 25,000 people surveyed, more than half have never done their first deal. 56% of the total surveyed were interested in real estate, about 13% have done a single deal, 20% have done between two and five deals, the remaining 8% have done between six and 20 deals and only 3% have done more than 21 deals.
Of those surveyed, a large majority of people want real estate investing to supplement their conventional income, ultimately allowing for early retirement. While there’s a bit of disconnect between those never having purchased even one investment property and a significant amount of those wanting to quit their day jobs and become solely reliant on income properties, it can be done. Online tools like Investability, its affiliate company, Hubzu and even online forums like BiggerPockets are making it easier than ever for investors to enter the space and successfully begin building their wealth through rental properties.
The biggest challenge is getting over the hump and actually buying that first property! The team at Investability has created many podcasts and blogs focused on helping the everyday investor cross the threshold from wanting to invest and actually doing. If you’re ready to take the plunge, this handy 5-step checklist will help get you prepared and help you stay on track.
- Talk to a lender
Unless you have cash on hand, you will need to get financing for your first real estate deal. Don’t be afraid to use leverage. Listen in to episode 11 of The Investability Podcast to get a deeper understanding of how financing your investments can actually help you build equity faster, and even propel you into more deals. Understand what you can afford and how long the lender will take to fund the deal. Some deals move faster than others and you don’t want to end up at a closing table without the funds necessary to finish the deal!
- Evaluate locations
It might feel safer to invest close to home, and in some areas, that works. However, if you live in an expensive metro area, you may be doing yourself a disservice by not looking into secondary markets with potentially better investment opportunities. Research markets with growing economies. If people are moving to a place, that’s usually a good sign to investors looking to maximize rents and minimize vacancy. Once you pinpoint a few options, take a deeper dive into the neighborhoods, school districts, crime rates, etc.
- Find a property and crunch the numbers
There are a plethora of online tools that simplify the process of finding and analyzing properties. With data being so plentiful and easily accessible, make sure to do your research. Talk to an agent about the neighborhood and even look at other comparable properties when you can. When you find a property that appeals to you, start crunching the numbers. Try to get a grasp of your expenses, to the best of your ability, factor in the expenses you can’t foresee, and make sure the income you generate from rent will be sufficient to cover those costs. By talking to other experts in the space, and there are many willing to help, you have a good chance of finding a profitable rental property.
- Line up your vendors
Once you find a property and are ready to close on your first deal, it’s time to start assembling your A-Team. Check out episode 10 of The Investability Podcast to learn more about the essential members of your investment team. From the findings uncovered in your home inspection, does the property need work? If so, you’ll need a good contractor. Are you going to manage the property yourself or will you hire a third-party firm to do it for you? If you plan on managing your rental yourself, make sure you’re ready for the early-morning maintenance calls or collecting rent from a past-due tenant. Property management is a lot of work and most investors choose to collect a check each month while letting a management company handle the day-to-day operations. If you choose to hire a property manager, make sure you vet them and feel confident in their ability as they will be the liaison between your tenants and you.
- Do it!
You’ve done your due diligence, you’ve gotten financing, it’s time to buy. Your first rental property is similar to a college degree, it’s an investment whether you make money or you lose money. The knowledge you will gain from going through the process can’t be taught in books. While the internet can help get you ready, there’s nothing like doing it yourself.
You can do this! Investing in real estate cannot only unlock financial freedom, but it can also be a great way to supplement your income while you continue to work. It’s hard and it’s a risk, but with the shifts in technology, data and a vast number of professional resources available to you, it’s never been more attainable. So get out there and do it! After buying one rental property, it becomes easier and easier to keep adding to your portfolio. Mistakes are bound to happen along the way, but let them be lessons that you learn from the next time around.
Investability is here to help. No matter what step of your investment journey, our team has the data and resources needed to get you into investment rental properties. Give our team a call if you’re ready to get started. 1 (855) 239-3652