Are you a renter looking to transition to the role of a landlord? Do you think you have what it takes to keep up with rent collection, home inspections, and tenant complaints? This step-by-step guide to buying your first-income property can help you better navigate the task of being a property owner.
Is Rental Property the Right Investment for You?
Although owning rental properties is one of the most stable forms of investment, it isn’t for everyone, or at least not right away. Thus, it would be best if you didn’t dive into the industry simply because everyone else is doing it. Real estate is a capital-intensive venture you should only embark on based on your state of mind, finances, and risk aversion.
Real estate is right for you if:
- You’re ready to be a landlord
- You don’t mind investing long-term
- You value stability
Real estate isn’t right for you if:
- You want to get rich quick
- You need liquidity
- You’re not ready to deal with tenants
5 Steps to Buying Your First Rental Property
1. Do Your Research
Research is essential for any business owner to thrive. You must be ready to do your homework and find out what you need to succeed as a property owner, especially if you’re buying your first one. While there are some things you’ll have to learn on the job, going in with an idea can help you navigate hurdles better. You should compile a list of questions to research on the internet or ask experienced real estate professionals. For example, would you like to invest in a single-family unit or a condo? How does that rental property perform in your chosen location? Also, it would help to decide whether you’ll manage the property yourself or hire a qualified property manager to handle your rental investment property.
2. Get Your Finances in Order
As we highlighted earlier, real estate is a capital-intensive venture, so you must prepare aptly. If you have personal debt, you might want to consider paying those off first. Too much debt can make getting a loan with reasonable rates harder. Besides, it might be hard for you to keep up with monthly mortgage payments. At this stage, you should start evaluating your financing options. A bank loan might not be the best solution for everyone. If you’re a good negotiator, you may consider seller financing. Of course, you can pay cash upfront if you have enough to spare.
3. Find the Right Property
Your first rental property can make or sink your portfolio. Hence, you must find the right one. The key word during your search is location. Prime location often translates to higher income for the property owners. Thus, it would be best if you were looking for things that attract renters. As a tenant, what informed your decision of where to live? Was it close to your office, good schools, and the city? Remember that people are willing to pay more for neighborhoods with an excellent walkability score. Gyms, laundromats, supermarkets, and bus terminals can contribute to your walkability score. The more errands people can complete on foot from your rental, the better.
4. Estimate Your Expenses
Before committing to any rental property, you should estimate your expenses. One of first-time property owners’ most common mistakes is underestimating their rental costs and undercharging tenants. You need to take a holistic approach when calculating your operating costs. Most landlords will account for repairs, utilities, staff salaries, loan mortgage, and property taxes. However, it’s easy to ignore travel expenses, employee gifts, and HOA fees. With these expenses in mind, you can create an accurate budget and ensure your cash flow remains positive. Also, it can help you take advantage of tax deductions.
5. Know Your Landlord’s Duties
As a tenant, you might think your landlord has it easy. After all, they only remind you when it’s time to pay rent and come around occasionally to make repairs. However, being a landlord is an active job and managing a rental property requires a lot of attention. Besides the apparent roles of collecting rent and making repairs, you need to schedule maintenance and pay utilities. When your units are vacant, you have to put out ads, screen tenants, and sign a valid lease. Also, you need to be aware of state laws regarding habitability, security deposits, and much more. With so many responsibilities, you should consider leaning on the help of other real estate experts.
Conclusion
That’s our step-by-step guide to buying your first income property. Moving from tenant to landlord is a big transition, and we hope this article clarifies what you need to do. However, before taking these five steps, you should consider if real estate is right for you. Remember that your first rental property will set the pace for the rest of your business. Thus, it would help to rely on an expert property manager when you need it.
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