Buying Rental Property: 35 Expert Tips for Beginners

Are you looking for tips to help you in buying rental property? Here are crucial rental property tips we’ve collected from seasoned experts.

Real estate investments have always been a tried-and-tested way of building wealth and creating a solid stream of income. These investments have created many millionaires who have gone ahead to diversify their portfolios and live their dream lives.

Table of Contents

1. Rental Property Purchase Tips for Newbies
2. Buying Rental Property: Starting Tips
3. Buying Rental Property: Finance Tips
4. Buying Rental Property: Location Tips
5. Buying Rental Property: Property Tips
6. Buying Rental Property: Other Practical Tips

And the same can happen to you if you play your cards right. If you’re just starting your journey as a real estate investor, this blog is for you.

Rental Property Purchase Tips for Newbies

However, the last few years have been especially dramatic for the industry. With mortgage rates climbing through the roof and steep inflation hitting the market, many investors are choosing to take the sidelines and watch everything unravel from a safe place.

But it doesn’t have to be that way. Successful real estate investing begins with an unending quest for knowledge. You need to understand the dos and don’ts of investing while avoiding common pitfalls.

Besides, the world’s population keeps on growing. This surge continues to boost the demand for housing. Isn’t this the perfect opportunity for real estate investors to take advantage of?

As you can already tell, you can gain many benefits while still being part of the action. How?

By following this crucial rental property advice in this in-depth guide we’ve put together.

Buying Rental Property: Starting Tips

The following are some tips to get you started on your real estate investing journey: 

1. Make Sure You’re Landlord Material

Buying rental property is a challenge in itself, but being a landlord is actually the hardest part. Just because rental properties are considered passive investments, that doesn’t mean you’re fully passive in managing them. 

If you’re planning to get into real estate investing, then you need to have the time and skills to put into managing your rental property. Ask yourself these questions:

• Do you know your way around a toolbox? 
• How are you at repairing drywall or unclogging a toilet? 
• Are you willing to handle maintenance and repair requests?
• Can you track your monthly revenue and expenses?
• How will you handle rowdy tenants or delayed payments?

If you’re becoming a short term rental host, know that you’ll have more responsibilities and tasks. The additional responsibilities include cleaning the property after every checkout and restocking supplies and toiletries.

Also, expect to market the rental to boost bookings and respond promptly to your guests and inquiries.

Tips to Manage Being a Landlord

One of the best ways to make your life easier as a landlord is to carry out in-depth background checks on your tenants. This is to make sure that your tenants are responsible with your property, have good credit backgrounds, and don’t default on rental payments.

Also, if you choose to manage your property yourself, be careful not to become too friendly with your tenants. Becoming too close with them prevents you from taking any action should they default on rental payments or damage your property.

As you can tell, becoming a landlord involves quite a lot of work. These tasks can become overwhelming if you have a day job or you have other commitments.

The other option for you is to hire a property manager or property management agency to handle these tasks for you. This option would mean having to pay a certain amount, such as 10% of the monthly revenue, for the services. 

But this is a great investment considering the amount of work you take off your shoulder.

One piece of advice on rental properties to help you before becoming a landlord is to consider renting out your own home first to test your landlord abilities.

2. Have a Long Term Investing Plan

If you want to make money in real estate, you need to think long term. Identify your end goal and write a real estate business plan before buying your first rental property. Keep in mind that your end goals should be based on realistic expectations and your financial capabilities. Ask yourself:

• How much money do I plan to invest in rental properties?
• How many rentals do I plan to own?
• When do I plan to retire, and how much money will I need to cover my expenses?

These questions will help you lay the benchmarks you need to focus on your end goal rather than any minor setback when buying a rental property.

One of the best ways to implement a long term investing plan is to pursue the buy-and-hold strategy.

Buy-and-Hold Strategy

The buy-and-hold strategy is perhaps one of the most beginner-friendly strategies for real estate investors. As the name suggests, it involves buying an rental property and holding it for the longest period possible.

Essentially, the main goal of this strategy is to collect the maximum amount of rental income cumulatively or hold it until the property price appreciates as you desire.

This way, you can use the rental income to pay off your mortgage, which decreases your principal balance and increases your equity in the property. You can then sell the property for a handsome profit. 

If you’re getting into real estate investments for appreciation, keep in mind that it’s slow and steady. Many beginners often make the mistake of thinking they can cash out in less than a year and make a good profit. 

While this can be possible in rare cases, you need around 7-10 years to experience a reasonable appreciation rate.

Also, you need to have a keen eye for neighborhoods and properties that will experience a good appreciation rate in the coming years. Not all properties and markets appreciate at the same rate within the same period.

For example, an area earmarked for development can make a good market for appreciation. You can take advantage of such areas by looking for off-market properties or properties that need renovation and purchasing them at a modest price. It allows you to enjoy a good profit margin once property prices go up after the developments take place.

3. Pay Down Any Debt First

Some might say it’s ok for savvy real estate investors to carry debt as part of their investment portfolio. But as a beginner investor, it’s best to avoid that. 

So if you have student loans, unpaid medical bills, or any kind of balance on your credit card, then you should postpone investing in real estate for a while. Paying your debt in this situation should be your priority before buying rental property. 

You don’t want to put yourself in a position where you lack the cash to pay your debt. Being cautious is critical.

4. Use Leverage for Buying Rental Property

Some argue that buying rental property with cash offers more benefits, but experts beg to differ. Leverage means borrowing money to help finance an income-producing asset. 

The most common form of leverage in real estate is taking out a mortgage. Using leverage to buy an investment property gives you the advantage of starting a real estate business with little money. 

Moreover, it allows you to buy a larger asset with a better potential ROI than you could if you were buying rental property with 100% of the purchase price in cash. As you can see, leverage allows you to use other people’s money to make money.

Besides, you can pay off the mortgage using the rental income from your tenants. It means the only money you pay from your pocket is the down payment.

And speaking of down payment…

5. Save for the Down Payment

If you’ve been doing your research on investing in real estate, you should know that the 3% down payment you made on your primary residence isn’t going to work for a rental property. 

The typical down payment for investment properties is much larger than that–you’ll need at least 20-25% of the property’s purchase price, depending on the type of loan you’re taking. 

While some lenders might accept lower down payments, others won’t. If your lender allows you to access financing with less than a 20% down payment, note that you might be required to get private mortgage insurance, increasing the cost of financing.

Here’s a breakdown of the different levels of down payment you’ll require for popular types of financing:

• Conventional Loans – You can qualify for a conventional loan to purchase a single-family home with a 15% down payment with at least a 700 credit score. If you’re investing in a multi-family property, you’ll need a 25% down payment.
• Government-backed Loans – You may access government-backed loans from the US Department of Veterans Affairs (VA) and Federal Housing Administration (FHA) if you desire to buy a multi-family property, live in one unit, and rent out the rest. 

You may qualify for a VA loan to purchase a multi-family property with up to four units with a 0% down payment, provided you live in one of the units. As for the FHA loans, you need at least a 3.5% down payment to purchase a rental property with up to four units, provided you live in one unit.

So, anyone thinking of becoming a landlord or property investor should always come prepared and have the down payment ready. It will also ensure you get qualified for a rental property mortgage.

Buying Rental Property: Finance Tips

Up next, let’s talk about finances.

6. Weigh Your Financing Options Carefully

If you’re going to use leverage as experts recommend, then one of the things to consider when buying a rental property is your financing options. 

When you go to the bank to apply for a mortgage loan, you’ll find plenty of options available for financing your first investment property. Should you choose a 15- or 30-year mortgage? A fixed or adjustable rate? 

Of course, different options come with different benefits and costs. Therefore, it’s important to weigh all your financing options carefully to make sure you choose the right loan option that best suits your financial standing and real estate investment goals.

Here’s a breakdown of some of the best financing options for you to consider:

Conventional Mortgages

If you own a home, you might already have some experience with conventional financing. A conventional mortgage is a type of financing offered by traditional mortgage providers, such as banks, saving & loan associations, and credit unions. The federal government doesn’t back these loans.

Conventional mortgage providers must adhere to the guidelines set by Fannie Mae and Freddie Mac. These guidelines include maximum loan amounts and minimum credit scores. 

While conventional mortgage requirements vary from state to state, there are some standard requirements that every investor must meet before qualifying for one. For example, you might be required to have at least 20% of the property price as a down payment.

Meeting this down payment shows the lender you can afford the mortgage and that you aren’t at risk of default.

When it comes to the best term for a beginner investor choosing conventional financing, you may want to take a 30-year conventional mortgage with a fixed rate. This is also suitable for a buy-and-hold strategy since the monthly payments and interest rates don’t change.

Hard Money Loans

Some professional individuals or companies also lend money to investors specifically to help them buy investment properties. These individuals and companies are referred to as hard money lenders.

Hard money loans are a great option for real estate investors who may have a low credit score or cannot access conventional mortgages for one reason or another. They’re also faster when it comes to the processing time.

While they don’t necessarily consider an investor’s credit score, they look at the property’s value to determine whether to grant you the loan.

Also, the accessibility comes at a cost. These lenders often require a lot of paperwork, formalities, and even guarantees. They’re also short term (only around 36 months) and have higher interest rates (sometimes up to 10% more than conventional financing).

Due to these factors, hard money loans aren’t suitable for just any property type. They might be ideal for investors looking to buy cheap rental properties, fix them up, sell them fast for a good profit, and pay off the loan. In other words, hard money loans are great for the fix-and-flip strategy.

However, you want to evaluate the property’s profitability and after-repair value (ARV) before taking a hard money loan to finance a fix-and-flip project. You don’t want to pay for the loan from your pocket.

Private Money Loans

Private money lenders are also individuals who may have extra capital to loan you for your investment project. The only difference is that they aren’t as professional as hard money lenders. They’re just individuals who may be looking for a good return on investment in their capital.

Private money lenders could be people in your circle, such as family, friends, colleagues, or neighbors. They could also be other people you’ve met along your investing journey or introduced to by other investors.

These loans are great for investors who don’t qualify for conventional mortgages. They have fewer formalities and only rely on the personal relationship between the investor and lender. In addition, they have more relaxed requirements, lower interest rates, and flexible loan periods.

Know that private money loans are secured by a promissory note or current mortgage on the rental property. It can help the private money lender foreclose on the property if you default on the payments.

FHA Financing

FHA loans are backed by the US Department of Housing and Urban Development and the Federal Housing Administration (FHA). These loans are best for buying a primary home, not an rental property.

Due to this requirement, it’s suitable for investors willing to follow the house hacking strategy. This strategy involves purchasing a multi-family home, living in one of the units, and renting out the rest.

The down payment requirements, qualification criteria, and loan terms with FHA loans are friendlier compared to conventional mortgages.

VA Financing

The United States Department of Veteran Affairs has loans for veterans, service members, and eligible surviving spouses. VA loans basically guarantee a percentage of the mortgage originated from a conventional lender.

Some benefits of VA loans are that they don’t have down payment requirements, no private mortgage insurance (PMI) needed, low-interest rates, and limited closing costs.

The only condition is that the borrower needs to live on the property. This makes VA loans another great option for multi-family property investors.

7. Get Pre-Approval for a Mortgage Loan

One mistake that first-time real estate investors make is making offers on rental properties before actually securing financing. Instead, the right thing to do is get pre-approved before you even start your rental property search. 

A mortgage pre-approval is the process that a mortgage lender uses to determine how much money they can lend you. These lenders use factors such as borrower assets, income, and credit score to determine the following:

• What loan products you qualify for
• How much amount of money you can borrow
• What your interest rate will be

A pre-approval helps you better understand what types of investment properties you can afford to buy. Furthermore, including a pre-approval letter in your purchase offer shows the seller that you are a serious buyer and increases your chances of closing the real estate deal faster. 

So, how do you get pre-approved for a mortgage?

While many lenders have their own custom pre-approval processes, you can follow some steps to increase your chances of pre-approval. These steps include:

Estimate Your Monthly Payments

One of the most crucial processes of a mortgage application is determining whether you can afford the loan. Before applying for a mortgage, determine how much you’ll be comfortable paying back to the mortgage every month.

Ensure you write this number down and stick to it. Sometimes, a lender may pre-approve you for a larger monthly payment amount. But you don’t want to spread your monthly budget too thin. Stick to your budget.

Get a Credit Score Report

Most conventional lenders typically require a FICO score of 620 and above or a score of at least 580 for an FHA loan. Loans with lower interest rates are usually reserved for borrowers with a higher credit score of 760 and above.

Checking your credit score beforehand will help determine which loan products you qualify for. Besides, most lenders need to carry out a hard inquiry into your credit. This may cause a slight drop in your credit. But the pre-approval itself won’t affect your credit in any way.

The good thing about this is that subsequent credit checks from other lenders within the same period (45 days) don’t hurt your credit score.

Gather Your Documents

The pre-approval process is basically the mortgage application process. The lender will have to take an in-depth look at your finances. Be prepared to provide the following documents:

• Identification
• Bank statements
• Proof of income
• W-2 statements
• Proof of assets
• Employment verification
• Credit history
• Driver’s license
• Social security number

You don’t need to have all these documents downloaded on your mobile device. Just know how you can access them should the lender ask for them.

Once you’ve provided the lender with all the information and documents needed, expect to receive a loan estimate within three business days. But the process can be much shorter if you use an online mortgage lender. The loan estimate notifies you whether you’ve been preapproved and for how much.

8. Calculate Operating Expenses

While every rental property is different, all have one thing in common: expenses. As a landlord, you should know how to estimate the expenses you’ll need to cover to keep the rental property running. Some of the most important operating expenses associated with rental properties include:

• Maintenance costs
• Landlord Insurance
• Possible homeowners’ association fees
• Property taxes
• Monthly expenses like pest control and landscaping

The expenses can become even higher if you invest in short term rentals. With vacation rental properties, you also have to pay for property management, cleaning, restocking, and utilities, such as Wi-Fi.

One of the easiest ways for a first-time landlord to calculate operating expenses is using the 50% rule. For example, if you make $2,000 per month from rent, expect to pay 50% ($1,000) in total expenses.

9. Budget for the Unexpected

When considering your expenses before buying your first rental property, it’s also important to know all about and budget for the unexpected costs of owning a rental property. These include taxes, vacancies, and damages done by bad tenants. 

Moreover, it’s no secret that even the most robust real estate market can dip. So, the next tip for buying rental property from experts is always to set aside money for unexpected repairs. Experts also advise having at least six months in cash reserves for emergencies.

10. Open a Separate Business Account

If you put personal money into a business, including a rental property business, you can be exposed to some potential risks. For example, combining your finances can lead to some accounting as well as tax issues. Plus, it becomes much harder to keep track of monthly income and expenses. 

Therefore, it’s best for a landlord to stay on the safe side and keep your personal and business finances separate by having separate accounts. And if you’re planning to buy multiple rental properties and grow your business, remember to open separate accounts for each rental you own.

11. Understand Real Estate Taxes

As the adage goes, there are only two sure things in life; death and taxes. Depending on where you invest, property taxes can make up a large part of your monthly expenses. 

Local governments levy property taxes on investors in their locality to be able to offer various services, such as garbage collection, police, schools, and fire. As such, you may receive a bill for property taxes from the city, county, and school district. However, most areas provide you with one superbill to pay.

The amount you pay in property taxes is calculated based on your property’s fair market value and the local property tax rate.

One of the major benefits of buying a rental property is tax deductions. If you own an income property, you can write off many expenses associated with rental property ownership. 

Here’s a breakdown of some property tax deductions you get to enjoy:

Mortgage Interest

If you have taken out a mortgage loan on your rental property, you can benefit from a mortgage interest deduction and lower your taxable income.

Rental property owners could previously deduct up to $1,000,000 in mortgage interest deductions. However, the Tax Cuts and Jobs Act has capped this amount at $750,000 for single filers and married couples filing together. For married couples filing separately, the limit is $375,000.

Depreciation

While many people invest in properties with the hope of enjoying property value appreciation, think of your property as a business asset, like a computer or truck. Many business assets will depreciate. They become worth less and less every year.

For rental properties, 27.5 years is the period it takes for your asset to reach the end of its useful life.

You deduct depreciation from your property taxes each year when filing your returns. However, the math isn’t that simple. There are different ways to calculate the depreciation on a rental property. That’s why you should consult with a real estate tax professional.

Property Repairs

Property repairs are usually tax-deductible in the year you incur the expense. It includes repairs such as patching holes in the wall, changing light bulbs, or fixing damaged garbage disposals.

Sometimes the cost may not be deductible. In this case, it may get capitalized and become part of your basis. Your basis means what you paid for the property.

For example, suppose you buy an investment property for $250,000 and spend $25,000 adding an extra bedroom. You may not deduct $25,000 that year since the IRS now considers you paid $275,000 for your rental property instead of $250,000. It could lead to a bigger depreciation deduction.

Here’s a list of some things IRS says should be capitalized:

• Additions
• Storm windows
• Landscaping and sprinkler systems
• Security systems
• New roofs
• Water heaters
• Heating and A/C systems
• Insulation 
• Flooring

Home Office Expenses

The IRS provides unique tax benefits if you operate a business in your residence. You can deduct some of the expenses of operating and maintaining that space from your taxes.

To be eligible for home office expense deductions, the IRS maintains that you must use your home office for regular and exclusive business. In short, if you only use the home office once in a while when it’s convenient, or you’re just working from home for your employer, you may not qualify.

When it comes to the size of deductions, it’s based on the percentage of your property dedicated to the home office.

Saving double digits on taxes while building equity at the same time allows you to automatically build more profit from your first rental property. So if you’re not aware of the tax deductions available to you as a real estate investor, get expert advice by talking to a certified public accountant about how to maximize tax deductions.

12. Use the Best Tool to Get Your Finances Right

At this point, you can tell there’s so much to account for when organizing your finances before buying rental property. 

Collecting all the data and numbers needed would be arduous since you need to comb various resources and ensure they’re credible. Recording the data manually would expose your findings to a lot of inaccuracies due to human error.

This is why you need an accurate and reliable tool to help you access all crucial metrics fast. And this is where Mashvisor rental property calculator comes in.

Mashvisor’s rental property calculator is an online tool developed to help real estate investors conduct thorough market and property analyses before investing. It gives investors access to crucial metrics, such as rental income, property expenses, occupancy rate, cash flow, and return on investment metrics, such as cash on cash return and cap rate.

With this tool, you don’t have to worry about data reliability and accuracy since Mashvisor pulls its data from credible sources.

This tool lets you spot the best neighborhoods and properties for rental property investment in just a few minutes. Whether you’re a beginner or an experienced investor, your ideal investment is just a click away with this tool.

Sign up with Mashvisor today to start your 7-day free trial and begin your analysis of neighborhoods and properties.

Buying Rental Property: Location Tips

Perhaps the most crucial factor to consider when investing in real estate is the location. Here are a few tips on finding the right market for your investment: 

13. Choose Your Location Carefully

Location is key when it comes to real estate investing. It determines whether your business succeeds or not. Besides, you can change everything in your property by renovating and upgrading, but you can barely change anything to do with your location. You ought to get it right from the very beginning.

What does a “good” location for buying rental property look like? It generally has the following characteristics:

• High demand for rental properties
• Positive cash flow
• Lenient laws and regulations (especially if you’re buying a house to rent out on Airbnb)
• Low price to rent ratio
• Safety
• Good school district
• Proximity to tourist attractions and central location (if you want to invest in a short-term rental)

It takes good research skills to find a location with the above factors when buying a house to rent out. But the challenge pays off; rental properties in locations with the above factors will help you achieve consistent and high cash flow.

14. Consider Out-of-State Real Estate Investing 

While first-time real estate investors prefer to buy close to home, these investments aren’t always ideal. Experts recommend searching for rental properties in other parts of the country. That’s because your local housing market might not be a good investment location. 

Plus, you might find a more profitable property that offers a much better ROI in another market. Why limit yourself to one area when you can find investment opportunities anywhere in the US housing market?

Here are some other reasons why buying rental property out-of-state may be a good idea:

• Diversification – Never put all your eggs in one basket. Having all your rental properties in one city or market isn’t wise. In case of a natural disaster or any catastrophic event, you will start from scratch again. This is why we recommend spreading your risk through out-of-state investing.
• Affordability – Rental properties are more profitable in areas with high occupancy rates and affordable property prices. If your city doesn’t present these characteristics, then it makes more sense to buy rental property out-of-state.
• Friendly laws and regulations – Some states have strict rules and regulations for investors. Others always take the tenant’s side in case of a landlord-tenant dispute. It makes more sense to invest in another city or state with favorable landlord-tenant laws.

15. Invest in Locations With High ROI

As you already know, owning a successful rental property business is about finding great real estate deals in locations with high rental demand. You also want to buy in cities with high cap rates, as these are considered the best places to invest in real estate. 

Other indicators of good investment locations for buying rental property are population growth, job growth, and a low unemployment rate. Find a city with these characteristics, and you’ve found yourself in the best rental market where you can invest for a high ROI.

16. Study the Housing Market Trends

This pointer in our list of tips for buying a house to rent out is important regardless of where you decide to invest in real estate, especially if you’re buying rental property out of state. Real estate market trends such as property prices, rental rates, home sales, interest rates, and other similar characteristics can all tell you where the market is heading. 

For example, if home prices are going up while home sales are slowing down, this means homebuyers are not putting any offers on homes for sale. In turn, this is a good indicator that the rental demand is strong! Real estate investors will have a better chance of scoring a good investment rental property and charging higher rents.

For some extra tips on how to go about buying a rental property, check out our video below:

17. Research the Neighborhood You’re Buying in

When we talk about location in real estate investing, we’re not just talking on the city level but on the neighborhood level as well. The best neighborhood to buy your first rental property is where your property will have a high chance of being occupied – i.e., where there are good tenants. 

For example, it’s hard to find and keep a good tenant in a bad area with high crime rates. Besides low crime rates, other factors that’ll help you identify good neighborhoods for buying an income property are proximity to public transit, low property taxes, a decent school district, a growing job market, and lots of amenities like parks, malls, restaurants, and movie theaters.

Buying Rental Property: Property Tips

Once you’ve locked in on a good location, you need to know how to find potential income properties that will help you build wealth and equity.

18. Know What Makes for a Good Rental Property

Not every house for sale out there makes for a good rental. As a first-time landlord, you need to set your criteria so you don’t waste your time looking at properties that will never produce good rental income or a return on investment. 

This means you need to know how to quickly run a rental property analysis and calculate ROI metrics like the cap rate, cash on cash return, gross rent multiplier, and cash flow. 

Calculating these numbers can help you assess a potential investment opportunity and narrow your property search before deciding to ensure you’re buying rental property that will make you money.

19. Buy Single-Family Homes First

Experts recommend that beginner real estate investors start their careers with single-family homes. These rentals are always in demand and are easier to manage than multi-family or commercial properties. 

Plus, with only one tenant, there tends to be less wear and tear. Being a landlord to a single-family home rental is a great way to get into real estate investing and gain experience before growing and diversifying your portfolio.

20. Buy a Multi-Family Home to Hack

If you’re interested in getting started with a multi-family investment property, the best way to do that is by buying a multi-family home that you can live in. 

For example, you can buy a 2-unit (duplex) or 3-unit (triplex) property, live in one unit and rent out the rest. Real estate investors call this strategy “house hacking.” It’s a good way to enter the property investing business while living mortgage and rent-free. 

21. Buy Below Market Value

Investors who understand how to be successful with rental properties know that the best investment properties are priced below market value. The reason is simple–the more expensive the home, the higher your operating costs will be. 

In addition, if you find a bargain now, it’ll help you withstand fluctuations in property value over time. That way, you can profit when you eventually sell the property. Some real estate experts advise starting with a $150,000 home for those who plan on buying rental property with cash.

22. Buy Rent-Ready Property

Many find it tempting to find cheap homes for sale and flip them into rental properties. While that could be a good way to make money in real estate, it’s not a good idea for beginners. Fixer-uppers carry risks, and you’ll likely pay too much for renovations. 

Don’t make things complicated, as you’re just getting started. Instead, consider buying rental property that’s more or less rent-ready and allows you to generate cash flow from the start.

23. Invest in Turnkey Real Estate

Turnkey real estate is properties that come with existing tenants and property managers. If the idea of screening and dealing with tenants or managing rentals fills you with stress, this is a great thing to consider before buying a rental property. 

Investing in turnkey properties means immediate rental income and a manager to deal with those 2 a.m. phone calls instead of you. It is one of the easiest ways to start making money in real estate from the get-go!

24. Only Buy Positive Cash Flow Properties

There are two ways to make money from investment properties: cash flow and appreciation. For beginner investors, it’s best to focus on the first. Meaning whatever type of income property you decide to buy, it has to be a positive cash flow investment. 

Don’t rely on appreciation because homes don’t always increase in value. If the rental property generates positive cash flow, on the other hand, any fluctuations in the real estate market will be less relevant. You can hold your investment longer and build wealth with cash flow rentals.

You can find positive cash flow properties for sale using Mashvisor. To learn more about our tools, click here.

25. Focus on Return on Investment

When it comes to purchasing a profitable rental property, return on investment is vital. Rental property investment is all about making a profit. The investment only makes financial sense when the rental property generates more than you spent to buy, repair, and upgrade the property.

For starters, return on investment (ROI) is a performance standard used to evaluate an investment property’s efficiency and profitability. It measures the amount of profit generated by a property compared to the total investment. 

The ROI formula is quite simple:

ROI = (Investment Returns – Cost of Investment) / Cost of Investment

While the formula looks quite straightforward, calculating the ROI can be a complicated process since there are many variables, such as mortgage payments and loan period, to consider. But there’s a solution to make it easier.

The solution involves using various ROI metrics that include:

• Cap Rate – The capitalization rate (cap rate) is a metric used to calculate the ROI of a property based on the amount of net operating income (NOI) it generates as a percentage of its current fair market value. This metric doesn’t factor in the method of financing used to purchase the property. However, it’s a good metric to use when comparing different investment properties.
• Cash on Cash Return – This metric is used to calculate a property’s ROI based on the actual amount invested. If you’ve taken out a mortgage, the total cash invested is the down payment plus any cash used for repairs, upgrades, or buying furniture.

26. Choose the Right Rental Property

Buying a rental property is different from a primary residence. You might like a house in the countryside, but a tenant might prioritize being close to jobs and schools. So, when searching for rental properties for sale, you need to focus on finding the right one that would appeal to your target tenant. 

At the end of the day, it’s the tenant who’ll be living in this property. Therefore, make sure to identify the tenant group you’re targeting (students, young professionals, families, retirees, or vacationers) and invest in income properties with features that hold the greatest appeal for them.

27. Look at Real Estate Comps

Rental comps is a term used in real estate investing that refers to comparable rental listings. Investors use comps to determine the current value of a rental property compared to other similar ones in the real estate market. 

Analyzing comps will also give you a benchmark of rental prices, a feel for demand, and a better understanding of the average performance and profitability of the housing market itself. All of this is important to know before buying rental property. 

Experts recommend finding at least 3-5 real estate comps sold within the past 3-6 months within a radius of 1-3 miles from your subject investment property.

Buying Rental Property: Other Practical Tips

On top of everything already mentioned, here are a few more tips to make your journey much easier: 

28. Have a Property Inspection Performed

Never buy your first rental property before consulting with a professional home inspector. An inspection will reveal any hidden problems in the property that you missed. It could cost you thousands of dollars to repair–turning the property into a money pit instead of an income-producing asset. 

You can use the results of a home inspection in negotiations to reduce the price or ask the seller to fix these issues before buying the property.

29. Research Local Regulations

There’s one crucial aspect of real estate investment that many investors forget to look at local laws and regulations. Some markets have strict laws and regulations that make rental property investing an uphill task. 

You want to invest in a location where the laws are friendly to the landlord. It starts with researching the local landlord-tenant laws in your location.

Make sure you understand the process of registering your property, tenant security deposits, rules around eviction, rent control, etc. 

Conduct as much research as you possibly can to avoid any legal issues in the future. You can end up paying expensive fees and fines if you violate these regulations. Don’t let this happen to you. 

And this applies even when you’re investing in short term rentals.

30. Beware of Short Term Rental Regulations

Short term rentals have become increasingly popular in the past few years. Any popular thing needs regulation to bring in order. Many local authorities have implemented ordinances for many reasons. Some did it to prevent their cities from becoming tourist towns. Others simply want to ensure both hosts and guests are satisfied.

Either way, you need to understand your local Airbnb laws and regulations before investing in short term rentals. Of course, you want to avoid cities where short term rentals are illegal.

In some other cities, only owner-occupied properties are allowed to lease on Airbnb. In such a market, you may have to buy a multi-family property to live in one of the units and list the rest on a short term rental platform.

Also, be on the watch out for any limitations for short term rental hosting. Some cities limit the number of adults you can host per bedroom at any time. Others have a maximum number of nights you can lease out your property as a short term rental in a year.

All in all, get down to every little detail on your local laws and regulations to avoid issues down the line.

31. Build a Team

An old saying goes–If you want to walk fast, walk alone. But if you want to walk far, walk with a team. This is true even for real estate investors. There’s power in numbers. You need to surround yourself with people who’ll hold your hand and show you the ropes, especially when you’re starting out.

32. Find a Solid Real Estate Agent

Just like when searching for your own home, you’ll want to work with an agent when searching for an investment property for sale. Most experts recommend finding an investor-friendly real estate agent. Meaning you want to work with someone who has experience working with rental properties instead of one who simply works in residential areas. 

Tell your agent your plans and purchase criteria, and they should be able to search for the best listings, keep you focused on your goals, and walk you through the process of buying rental property. 

33. Speak With Rental Property Managers

We mentioned earlier that working with a property manager could be a worthy investment depending on your situation. Hiring the services of rental property managers can be a good thing to consider for a first-time real estate investor. 

Ask yourself: Do I have the time to manage my investment? If the answer is no, then you might have to consider hiring a property manager. 

Managers will do pretty much all the work, from interviewing and doing background checks on tenants, making sure they sign the lease and pay their rent on time, setting the rental rate, taking maintenance calls, etc. 

If you opt against hiring one, it’s still a good idea to speak with a manager for advice and tips for managing a rental property on your own.

34. Consider a Real Estate Partnership

Making a successful real estate investment alone can be daunting, especially if you’re still new or don’t have enough capital. That’s why you might want to consider working with a partner on your first rental property. 

A partnership can help you accomplish more than you could on your own. Moreover, it’ll give you the chance to pool skill sets, resources, and experience to complete a real estate project. It allows you to spread risk, scale your business, take on larger projects, and buy more rental properties.

35. Network With Real Estate Professionals

If you want to be a successful real estate investor, then you should surround yourself with professionals in the industry. Investing in real estate rentals is a skill learned largely by experience, and the experience of other investors is a much easier (and cheaper) path than learning from your own mistakes. 

Networking with professionals like real estate agents, attorneys, managers, inspectors, and even handymen is also a great way to get advice on what to do and avoid. 

 One of the most important tips for buying a rental property for new landlords is to join a local landlord association and create a real estate investment network that you can rely on.

Using Mashvisor to Buy First Rental Property

Find the Best Rental Property Based on Your Search Criteria

One of the most important aspects of real estate investing is the process of searching for and finding investment properties for sale. Mashvisor’s real estate investing website provides the user with the most advanced tools and filters for a seamless experience when searching for investment properties in your city or neighborhood of choice. With a wide variety of filters and ways to customize your search, you can find investment properties based on your search criteria and get the most relevant results for your search based on:

• Your available budget for investing
• Your desired cap rate and cash on cash return of the investment property
• The property type of your choice: Single-Family Homes, Condos, Townhomes, Luxury Homes, Vacation Homes, and Multi-Family Homes
• The property status: For Sale, Pending, Sold, or Foreclosed
• Property’s Characteristics including: Age, Size, Number of Bedrooms/Bathrooms

Additionally, you can use the heatmap feature to locate areas with the highest/lowest:

• Traditional and Airbnb cap rate
• Traditional and Airbnb cash on cash return
• Airbnb occupancy rate
• Listing price
• Traditional and Airbnb rental income

Rental Investment Analysis

Mashvisor is a real estate investing website which brings the best of two worlds: finding investment properties and analyzing investment properties. Using Mashvisor’s investment property analysis you can access insights, projections, and analytics for each investment property to determine its profitability and viability for real estate investment based on the following values and metrics:

• Traditional and Airbnb cap rate
• Traditional and Airbnb cash on cash return
• Traditional and Airbnb rental income
• Airbnb occupancy rate
• Investment property’s cash flow
• Optimal rental strategy: short-term (Airbnb) vs long-term (traditional)
• Walkscore
• Historical data for all of these metrics and values for up to 12 months in the past

In addition to searching for investment properties and gaining useful insights about them, Mashvisor’s real estate investing website allows you to modify the different values for calculating the different metrics based on relevant and realistic numbers to get the most accurate results on your calculations. The investment analysis calculator includes 3 separate sections:

Financing Method

• Choose your financing method between cash or mortgage
• Choose your mortgage type and duration
• Set the interest rate

Expenses Calculator

• One time startup costs including inspections, total repairs, furniture and appliances, and closing costs
• Recurring expenses such as insurance, utilities, property management, property maintenance, property tax, HOA fees, and rental income tax
• The option to add other costs or modify the existing costs

Investment Property Analysis

• Calcuate the results based on the values in both the financing and the expenses calculators
• Cap rate
• Cash on cash return
• Rental income
• Cash flow
• Occupancy rate

Perform Comparative Market Analysis

Not only can you use Mashvisor’s real estate investing website for searching for properties and obtaining their analysis, but the platform also allows you to conduct a comparative market analysis with ease and at a drastically reduced amount of time. Using Mashvisor, you can turn a 3-month’s worth of research into 15 minutes of search using our competitive market analysis tools which allow you to get comparative data for any neighborhood of your choice.

The market analysis tool will give you the averages of a neighborhood and the list of all investment properties in that neighborhood using this data:

• Average traditional and Airbnb cap rate
• Average traditional and Airbnb cash on cash return
• Average traditional and Airbnb rental income
• Average Airbnb occupancy rate
• Average listing price

Additionally, you can conduct a competitive market analysis of your city or neighborhood of choice using the real estate heatmap feature, allowing you to obtain insights on these values using visual cues and indicators:

• Traditional or Airbnb cap rate
• Traditional or Airbnb cash on cash return
• Traditional or Airbnb cash flow
• Airbnb occupancy rate

Learn more about how Mashvisor can help you find the best deals in the most profitable markets. Sign up for a 7-day free trial now, followed by 15% off for life.

Key Takeaways

Real estate investing is a surefire way of building wealth to last many generations and create a consistent income. One of the best ways to invest in real estate is by buying rental property. 

Many potential investors have yet to take their first step since they don’t know how to go about it. But we have various tips on investment properties for investors who want to venture.

Ensure you have the skills and tenacity to become a landlord. Becoming a landlord isn’t for everyone. After that, work on your mindset to ensure you pick long term investment strategies. Successful investors think long-term.

Also, ensure you stay on top of your finances, carefully choose your investment neighborhood, and the spot profitable investment properties to purchase. These three steps require you to use the best real estate tools in the market.

This is where Mashvisor comes in. We have the best tools to help you make wise investment decisions and walk with you through your investment journey.