So, you are a first-time buyer and looking for buying your first rental property?
To get started First of all – Make up your mind whether you are looking to buy a rental property to hold long-term for monthly rental income or to hold a short term and make a profit by selling the property.
In this article, we’ll discuss how to buy rental property to maximize earnings and minimize expenditures in simple steps and explain the process.
Buying Your First Rental Property
#1. Look for Positive Cash Flow Properties
What do you mean by “Positive cash flow” if you might ask?
It is the positive sum of the amount left over after collecting rent and deducting the expenses.
For example, if the amount you collect for monthly rent is $1,000. You pay $400 for the mortgage, $50 for utilities, $75 for insurance, $100 for property taxes, and $25 for repairs, your positive cash flow for that month is $350.
The higher this number, the more money you will make. If the monthly property maintenance costs more than the monthly rent you are receiving, it is not a positive cash flow, and you will have to spend your money each month to manage this property.
#2. Buy Properties in Desirable Locations
Location, Location, Location is what matters. It is arguably the most important thing to consider when buying a rental property, only second to purchasing positive cash flow properties.
If the property is close to parks, restaurants, or shopping malls, wouldn’t you prefer to live here? It’s the same for the other tenants who want to rent the place.
#3. Hire a Real Estate Agent
Use an experienced realtor or a realtor within your budget range to help you find potential rental properties. A realtor will create a customized search as per your demands and in the areas, you are searching in.
The property search contains parameters like location, home size, living room, bedroom and bathroom size, and type of home (single-family, duplex, etc.). A realtor will also help you with the negotiation when you decide to place an offer to purchase a property.
Read More: BirdDogBot Real Estate Search Engine – Review
#4. Consult a Tax Professional
Income from rental properties will be reflected on your yearly tax return. There are several ways to list the property on your tax return, depending on how you choose to title the property.
Some people/investors prefer to own rental properties in their name. In contrast, others prefer to own the properties in a business name.
By consulting with a tax professional, you can learn the benefits and drawbacks of owning a rental property, and they can advise you on the best decision for your specific scenario.
#5. Work with a Mortgage Banker
It’s essential to work with a mortgage banker that you trust. Getting a pre-qualified mortgage approval early on will let you know how much you can afford and your monthly payments.
In addition, a mortgage banker can help you evaluate whether a rental property will be cash-flow positive.
#6. Find a Mentor
What/Where is the best place to go for advice on owning a rental property? Obliviously someone who already owns rental properties!
Also, you can find mentors by attending conferences, joining associations, or networking events.
Finding a mentor who can support you and your ideas regarding your property is imperative. While you need to make decisions that best suit your needs, it’s always great to have someone who has already been in your shoes to give you insights.
You might want to read this: What is a Credit Score and Why is it Important?
#7. Always Create Written Leases with Tenants
Lease requirements vary from state to state. Some states allow verbal leases, whereas some states require written leases. A written lease is vital to have your tenants sign so that you have enforceable rules and protection for yourself and your tenant.
The written lease agreement will bind you and your tenant, making everything easier for both parties in the unfortunate event of disagreements.
Read More: About Types of Real Estate Investment before Buying Your First Rental Property
#8. Don’t Overpay for the Property
The average buyer places an offer on at least ten properties before buying one. Don’t overpay for a property to buy it.
Whether you are planning on keeping the property long-term or only for a short time, overpaying for the property will lower your cash flow and decrease your realized earnings when you sell the property.
Do thorough research on the neighborhood area on the property prices going on.
The Bottom Line
Since you will be spending and investing your hard-earned money in a hope that this rental property is going to be your monthly bread earner, it’s best if you do and goes a thorough deep thorough research on finding and buying a good rental property in the right area. It would be like a goose laying golden eggs every month.
*Tips: Do thorough research before buying your first rental property.
