8 Tips For Buying Your First Rental
Real estate is known to have created the largest amount of first generation millionaires. Now you might be thinking, “I don’t want to be a millionaire, I just want to buy a few rentals…” & that is totally fine! Throughout this article I am going to go into detail on how to purchase & acquire your first rental in 90 days! So get out your notebook & get ready to take some notes on how to create your financial freedom!
#1 Commit to the Process
Everyone thinks it is easy to go out & purchase real estate. They watch shows on HGTV that make the process look “simple”. Well, let me tell you this, you HAVE to be committed to owning real estate if you are ever going to make it in this. You are going to face repairs, vacancy, eviction, tenants calling to complain, & much more. And the only way you will get through it is if you stay committed.
#2 Learn from the Best
Nowadays everyone is willing to give you their opinion on things. For example, post a controversial topic on social media & you can see everyone chime in. Because so many people will be giving their “opinion” you need to only listen to those actually “doing” what you want to do. Don’t listen to your neighbor who lost 2 single families when the economy turned down because they were hoping for appreciation. Listen to the 20+ year investor who has been through multiple market cycles & still has a million dollar + portfolio. Tips for learning from the best are online, local REI meetups, & a paid mentorship program. Always remember to vet your information sources.
#3 Start Your Market Research
Where do you want to invest? Do you want it to be local, out of state, or just in a different city? Does it even make sense to buy rental property in your city? Do the numbers pencil out? These are the types of questions you need to ask yourself. This will help you narrow down the specific area you want your rentals to be in. An example would be “I want to buy single family houses in the UW Oshkosh Campus area that produce X amount of money each month”. In the next few tips we will go over how to run numbers & determine the specific asset class you want to be in.
#4 How to Find Property
This is the question that everyone would like to know the answer too. Well, in all honestly you can find property in a multitude of ways. Whether it is from personal marketing, your Realtor, craigslist, zillow, FSBO, or a referral. You need to find which way works best for you, what you have time for, & what you can commit to on a daily/weekly basis. Your job may only allow you time to scout deals on the MLS & that is totally fine! Or if you have a lot of extra time you can start marketing to private parties which is a conversation for another time.
#5 How to Fund the Property
Typically, people think you need 20% down to buy a rental property. This is NOT TRUE. It all depends on the sellers motivation & if they would consider creative financing. What I mean by creative financing is they would carry the note on the property (seller finance), and then you only need to come up with a small down payment. Or you could even borrow down payment funds from a family member & pay them a monthly interest rate on that money. Creative financing is a multiple hour conversation. If you are interested in keeping it easy & have enough money saved a traditional mortgage lender can help you out with doing a simple 20% down conventional loan. These will by far have the best interest rates & terms.
#6 Should I Buy a Fixer Upper
This is a decision that you have to make. I know from experience that the BEST deals come from run-down properties. A lot of the people over estimate the actual repair costs that would go into a rental property. For the most part, paint & flooring go a very long way when renovating a property. When you start getting into mechanicals, structure, & expensive items I would recommend having some sort of contingency to protect you, or have a contractor walk through with you. With fixer upper property, you have the potential to complete a deal for $0 out of pocket if you buy it right. (MESSAGE ME HOW TO DO THIS)
#7 Calculating Expenses
No matter if the property is new or old, it will have operating expenses. Most Realtors do not know how to calculate expenses for a rental property. They “think” that it is rental amount – PITI = Cash Flow.
The realistic way to calculate expenses is the following:
Rent – Vacany (5%) – Repairs (5%) – Capital Expenditures (5%) – Property Management (10%) – Taxes – Insurance – Mortgage (if you have one)
When considering all of these factors it may seem extremely hard to make money on rentals. And you are right, it is difficult to make a lot of money off of a single property. But what also must be considered is the tax benefits, mortgage pay down, write-offs.
#8 What Asset Class is Best for Me
Although it is daunting to get started in real estate, it is not all that hard. If you start off with buying a single family houses that is awesome! But as you become more experienced you will truly figure out what works best for you. I am going to go into a few details on each asset class below:
Single Family (1 unit): One source of income, vacant when your tenant moves out, market value dependent upon comparable properties, can move into if needed, tenants stay for longer, easily accessible for anyone.
Small Multifamily (1-4 units): Low barrier to entry, more “doors” under one roof, still have rent payments if a unit goes vacant, considered a residential purchase, can self manage.
Multifamily (5-50 Units): Considered a commercial property, need to “know the process”, creates massive amounts of income, value is dictated by the amount of rent produced.
Storage Units: Low Cost to build, typically earn a 7-10% cash on cash return, very low maintenance, very desirable, difficult to find in this market.
Whats Your Next Step
I appreciate you taking the time to read this blog on how to buy your first rental property. I want to congratulate you for being interested in changing your financial future. Rental property is a long term play. In the next 10-15 years if you can acquire 7-10 properties (not even 1 a year) you could be financial set. Depending upon your monthly expenses you may be able to retire early.
I fully believe that anyone can achieve financial freedom through real estate. If you need advise or help as to how to begin the process please reach out! Call me direct at 920-252-2864 or fill out the form below.
Talk Soon,
Carter