Before buying a rental property, one must take all things into consideration to make sure that buying a rental property is the right choice for him/her.
There are several things to be considered before making the decision, and they differ depending on the person who’s making the decision. So, in order to give you an idea of what should be taken into consideration and how different personal aspects affect your decision of buying a rental property, we are going to tell you the story of Sarah: a real estate investor who made her investment decisions based on her own personal situation, and managed to pull it off and achieve financial freedom.
What to Consider Before Buying a Rental Property?
After graduating from college, and after educating herself through extensive reading and researching on real estate investing, Sarah was finally sure about her decision: she wanted to buy an investment property. But before getting started on her real estate investment venture, Sarah needed to ask herself a number of questions to make sure she had the optimal investment strategy and that she wouldn’t be throwing away the money that she’d been saving from her full-time job on an investment that is destined to fail.
In order to do that, Sarah decided to take a day off to carefully plan her moves. She opened her laptop, went to Mashvisor.com, and started reading about the types of investments that are best suited for her situation. A couple of hours later, Sarah finally made her decision: she decided on buying a rental property. Sarah wanted to enjoy the passive income that could be achieved through a rental property, and she was leaning towards the idea of becoming a landlord.
Related: Buying Your First Rental Property: FAQs
She was also more confident after realizing that she could use Mashvisor to its maximum potential if she invested in a rental property, which made it easier for her to make the decision. So, Sarah went ahead and subscribed to the platform, and with a warm cup of coffee, she made her first step towards achieving financial freedom.
Buying a Rental Property: Type of Property
After signing up with Mashvisor, Sarah immediately went on to the property finder tool in order to find a good property to invest in. Dazzled with the number of listings that she could choose from, Sarah decided to narrow down her choices by focusing on a single type of real estate properties – three-bedroom single-family homes.
Sarah is a smart girl, and she had it all figured out.
Buying a Rental Property: Location
Sarah worked as a lecturer in the college that she’s graduated from. She knew everything there was to know about the area. It’s a college town, which means there are a lot of college students all around, and a large number of faculty members and other administration who worked with her at the college. She knew perfectly well why she’s investing in a college town. She had a strategy in mind, and she knew it had a very high chance of success. She also knew the advantages of investing in a college town: transportation, restaurants and cafes, museums, sports events, arts events, etc.
Related: College Towns: The Best Places to Buy Investment Property
The location she chose was perfect for her: it was the same area she worked in, and it had a large pool of tenants to target.
After going through the Mashvisor property finder, she finally chose the perfect property for her investment based on quantitative and qualitative data, and after comparing a number of different properties that seemed to fit her investment criteria and doing the necessary calculations using the Mashvisor investment property calculator, Sarah decided on the best property for her investment based on its cash flow and its cash on cash return.
Buying a Rental Property: Financing
Although she’s been saving the majority of her salary for the past 2 years of working as a full-time college lecturer, Sarah didn’t have enough money to purchase the property without acquiring a mortgage loan from a local bank. She also knew that it was a bit challenging to acquire a mortgage loan for an investment property, and it was easier to acquire it for a home that she intended to live in, but that’s exactly what Sarah had in mind.
In order to make it easier to acquire the loan, Sarah was planning to use the property as her own primary residence. She would live in a room in the house and would rent out the other two rooms to prospective tenants. So, Sarah acquired a loan to cover 90% of the property’s price, and she put a down payment of 10% of its price from her own saved money. This rate wouldn’t have been achieved if she wasn’t going to live in the property.
Buying a Rental Property: Renovation
Although the property that she was purchasing wasn’t in a bad shape, the previous residents of the property were actually college students. The furniture and the general condition of the house were more appropriate for students, but not very appropriate for a college lecturer who’s taking life more seriously.
So, in order to make her rental property more appealing to the type of tenants that she was targeting, Sarah decided to renovate the place and make it feel more “grown-up”. This way, she could ask for a higher rent, and she would be more confident about finding the type of tenants that she was looking for.
Buying a Rental Property: Property Management
The best part about Sarah’s decision to live on the property that she’s renting out was that she wouldn’t have to hire professional property management, which meant she had one less expense to worry about.
Related: Why Opt Against Hiring Professional Property Management Companies in Real Estate Investing
Sarah would manage her own rental property, and perhaps even share the load and responsibility with the tenants who were soon to be living with her.
Buying a Rental Property: Marketing
After making all the investment decisions, signing the property, and renovating the house – it was finally time to find the tenants.
As I said, Sarah had it all figured out. She advertised her rental property among colleagues around the campus. She wasn’t interested in renting out the two rooms to college students; she wanted more mature, more professional people to share the living space with, so she targeted other college lecturer and professors who were just starting out with their careers.
It was fairly easy to find the tenants she was looking for because Sarah had a marketing plan in mind since the very first moment she decided to purchase the investment property.
Immediately after moving in, Sarah was starting to earn rental money which was enough to cover the mortgage payments. Her real estate investment had just begun, but Sarah knew very well that it was all going to go according to plan. She was confident in her real estate knowledge and her investment strategy, and if she ever had to leave town for a better job, Sarah would simply rent out her own room, hire property management, and move out!
Bottom Line
Not only did Sarah use her knowledge to shape her skills for buying a rental property as first real estate investment, she also knew the value of using the available real estate investing tools to plan her investment, and it all led her to make a successful investment decision that she never had to regret.
We don’t know what exactly happened to Sarah after her first couple of years of success. She moved out of town, and her property is still one of the hottest rental properties in that college town. Last we heard, she had three other rental property investments in three different college towns, and they were all generating a passive income for her, while she enjoys traveling around the world.
When buying a rental property, be like Sarah: use Mashvisor, educate yourself, find a property, analyze the market, and get rich with real estate.