Real estate investing is a great way to make money, and owning rental properties is one of the most successful real estate investment strategies. However, starting a real estate investment business sounds daunting to many as they simply don’t know where to start from and how to go about it. For many, buying a rental property seems like a nearly impossible task. This does not have to be the case though. In order to help you out in your journey towards becoming a successful real estate investor, here are some tips on how to buy your first rental property.
How to Buy Your First Rental Property: Figure out Your Finances
Investment properties, no doubt, come in many forms and sizes, but the one common thing among all of them is that they cost money. Thus, the first step towards buying a rental property is figuring out your finances. Check how much you have in your savings account, how much you expect to be able to save up in the next few months, and how much you will be able to spare on your investment property in the coming years. In this way you will set up your budget, and this is the first step towards a successful real estate investment.
How to Buy Your First Rental Property: Talk to the Bank
After you have figured out how much your own money adds up to, it is time to go talk to the bank. It is best to get a loan preapproval before you even start looking at potential candidates for your first rental property. First of all, in that way you will know right away whether you are eligible to take a mortgage and buy an investment property at all. Second, you will immediately know your property price range, which will narrow down and focus your property search. Third, once you’ve found the best investment property, you will lose no time in dealing with the bank and risk losing the property to another buyer.
How to Buy Your First Rental Property: Do Careful Research
Research is an essential component of buying a rental property, regardless of whether it is your first property or not. Look into several real estate markets. Even if you are a beginner real estate investor, you don’t have to be limited to your local housing market only, especially if you live in an expensive city like San Francisco, New York, Boston, Los Angeles, Washington, or Seattle. Read from various sources about different real estate markets before you settle on a location for your first rental property.
How to Buy Your First Rental Property: Choose Your Location Carefully
After some good research, it is time to choose the best location for your first income property. This could be close to where you live or you could alternatively go for out-of-state real estate investing. Remember that location is everything in real estate investing as it will largely determine your profitability (in terms of rental income, expenses, cash flow, cap rate, cash on cash return, etc.). Location includes the state, the city, the neighborhood, and the part of the neighborhood where your property will be located. As a new investor, try to go for good residential areas in order to be able to attract tenants.
Related: What Is Location in Real Estate Investing?
How to Buy Your First Rental Property: Conduct Real Estate Market Analysis
After you have narrowed down your location choices, conduct real estate market analysis in each of the pre-selected housing markets to get the real estate comps. This analysis will help you identify the property prices, the rent levels, the best investment property type, the best rental strategy, and many other important metrics. This is a very important step, so don’t skip it.
Related: Why Is Real Estate Market Analysis So Important?
How to Buy Your First Rental Property: Search for Potential Properties
In your property search, use various sources with listings of real estate properties for sale. Check out newspapers, websites, and mobile apps, while also not forgetting to just drive around your selected neighborhood to check out for signs for properties for sale. Also, attend open houses as much as possible.
How to Buy Your First Rental Property: Do Investment Property Analysis
Once you have a few properties in mind, conduct investment property analysis for each one of them. This is the only way to know whether you expect positive or negative cash flow from your future rental income – i.e., whether you will be making money or losing money from your real estate investment.
How to Buy Your First Rental Property: Use Real Estate Investing Tools
Real estate investing tools are one of the benefits of the recent spur in technology which all real estate investors should take advantage of, especially the new ones in the business. These tools will not only save you lots of time and efforts but will also let you make better investment decisions, particularly if you use the best tools such as Mashvisor’s investment property calculator. Using a rental property calculator is a must nowadays, unless you want to waste days and weeks going around properties, collecting metrics, entering numbers into spreadsheets, and doing crazy calculations. Mashvisor’s investment property calculator will turn months worth of work into a few clicks of a mouse button. So, any beginner real estate investor looking for his/her first rental property should use this real estate investing tool. It will help you choose the city, the neighborhood, and eventually the investment property and even the rental strategy by providing you with figures on the property price, the expenses, the rental income, the cash on cash return, and the cap rate for both traditional and Airbnb rentals.
Related: Mashvisor’s Investment Property Calculator: Real Estate Investing Made Easier
How to Buy Your First Rental Property: Choose a Simple Property
When you are nearly ready with the selection of your first income property, make sure to go for a simple one. As a new real estate investor, you don’t want anything that will cost you a fortune to repair and maintain or that will take up all your free time. You will most probably not be able to afford professional property management at the beginning, so choose a property that you can cater to on your own.
These are our tips on how to buy your first rental property and become a real estate investor. Most importantly, don’t let the many steps of the process scare you away from entering the exciting world of real estate investing. Just make sure to take each step at a time and to learn along the way. Before you know it, you will hold a diverse real estate investment portfolio because real estate investing is all about learning by doing. The sooner you start, the more time you will have to become a big and successful real estate investor.