12 Tips for Buying Your First Rental Property

The housing market is finally cooling across the country, and first-time investors are eager to get in on the downturn. Buying rental property is one of the most popular ways to invest in real estate, particularly in areas with housing shortages that are guaranteed to keep you at maximum occupancy. 

Before you dive in head first, put the following 12 tips into practice so you can buy your first rental property with confidence:

1. Line Up Your Financing

Financing an investment property is a little different than when you purchased your own home. The process isn’t as easy because there’s more risk to the lender, which means interest rates may be higher. Explore all your options, including hard money loans, personal savings, HELs and HELOCs, bridge loans, rehab loans, and even crowdfunding to get started.  

2. Prepare Your Down Payment

Before you dive in head first, put the following 12 tips into practice so you can buy your first rental property with confidence:

Aside from the loan, you’ll also need to know the loan’s down payment requirements. This can vary by loan and lender, so make sure you have the funds to cover it. In some cases, you may be able to get a loan for the entire purchase and not have to make a down payment out of pocket.

3. Find Cash Flow Positive Property

You want to start making back your investment right away, so it’s important to find properties that will result in a fast positive cash flow. Use TruDeed Deal Finder to locate properties like this in your area and skip much of the hassle and guesswork. 

4. Invest in Turnkey, Not Fixer Upper

One way to skip straight to the profit is to find turnkey properties that are in rent-ready condition. Though house flipping can be a lucrative venture to the right person, it can take months before you ever see a profit.

5. Buy in an Area You Know

I-buying is a growing trend where investors purchase properties online. This gives them access to multiple markets outside of their local one so they can scale their business quickly. 

But for most investors, especially a first-time investor, this model isn’t usually the best route. You need to stick to areas where you know the local market well and can feel confident you’re getting a great deal.

6. Buy Property Near Apartment Buildings

Apartment buildings are usually found in areas where people tend to rent instead of buy. If your goal is to generate rental income, then it makes sense to buy in areas that are already conducive to the rental market. 

As an added bonus, you’ll have good marketing potential for your property. You can capitalize on foot traffic that go to look at apartment buildings. 

7. Inspect the Property Before Purchasing

No matter how great a deal sounds, it’s always wise to go see a property in person before you commit to it. You need a full understanding of how much work is needed, what type of area it’s in, and whether you can truly afford to invest in it. The home inspection won’t always uncover all a home’s issues, so leave no detail overlooked.

8. Look for Areas that Have High Rental Demand, Even During Downturns

Regardless of what the economy and housing market are doing, some areas are able to maintain steady tenants. College campuses and tourist-rich cities are among the best places to invest, particularly if you’re interested in joining the short term housing movement. 

However, if you do choose to buy property for short term rentals, make sure you look at restrictions in that area. Many cities are imposing laws that prevent investors from purchasing properties for the purpose of turning them into Airbnbs, so do your homework before making a costly mistake.

9. Choose a Location Near Public Transit and Amenities

The closer you are to amenities like shopping, restaurants, and bus stops, the more valuable you become. Tenants who are looking for convenience will usually be willing to pay more in rent, especially since the close proximity to important places can save them money in other ways.

10. Research Your Costs

There’s a lot more involved in real estate investing than you may think, and knowing all your costs up front can help you avoid making major profit-killing mistakes. In addition to the property purchase itself, you’ll need to factor in operating expenses (more on that in a moment), insurance, property taxes, mortgage interest, ongoing maintenance, future remodeling, landscaping, marketing, legal and administrative fees, and property management fees (if you hire an outside company). 

These costs can vary by area, so it’s important to get a realistic cost profile so you can see how much you can truly afford to invest.

11.Calculate Your Operating Expenses & Determine Your ROI

Being a landlord is a job, not a hobby. You’ll have ongoing operating expenses for as long as you have tenants, and it’s important to budget for those expenses as accurately as possible to stay profitable. 

Tools like the TruDeed Financial Analysis Dashboard can help you calculate what you should charge, the after market value should you decide to sell, the instant equity you acquire, and other figures that will help you make a wise investment.

12. Work with a Property Management Company

As a first-time rental property investor, it makes sense to work with a property management company who can do all the heavy lifting for you. This way, you’re not stuck figuring out everything for yourself. 

In addition, think about how much time you’ll realistically have to manage your property. Do you really want to answer a call at 3 am about a water leak? If not, then hiring a property management company can be invaluable to your experience as a landlord. 

Are you ready to jump into the world of real estate investing? Discover how TruDeed for Investors can help you find deals and analyze finances to keep you in the green!

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