All You Need To Know About Rental Investment

You do not need to be the investor in the photograph.  Sure, doing anything for the first time can be anxiety-provoking, and it can be a major investment to purchase your first rental home; however, it is possible to make this happen without heading into a state of stress overload.  This article will provide information on the top tips to enjoy a low stress and highly successful first rental property investment.

Tip #1:  Advice Is Useful, But Always Do Your Independent Research

While using other’s advice can be beneficial, it is recommended to conduct further research to make an informed decision, such as reading investment books, taking courses, going to seminars, and using another other types of learning procedures.  I recommend that the seminars, courses and books be specific to the locations of the property, value the properties, and evaluate the real estate rental market. This is due to the fact that your success will be based on purchasing property in the correct area and your due diligence.

A first rental property investment is best done in your personal area of residence as you will more than likely know what is happening in that area from a financial perspective.  It is vital that you realize the economy of today will support your decision and how it affects your property future; therefore, this is not a short-term strategy.

Tip #2:  Do Not Rely On The Real Estate Agents Exclusively

While you do have the opportunity to work with real estate professionals who can handle foreclosures and gain a good deal, it is important to remember that these foreclosures will be “listed on the multiple listing service or MLS.  As a person within the real estate industry, you will have access to this information along with all of your rival investors; therefore, the competition will increase the cost of acquisition amount.

If you do not use professionals to conduct marketing campaigns and search for motivated sellers, you have a greater opportunity for negotiation as a beneficial deal.  Another approach to this real estate purchase is to work with experienced property wholesalers. Real estate wholesalers are also considered as property investors, but they are specialists and are able to find deals they can flip to rent properties at a below-market value price.  However, it is important that you review the investors’ references and are aware of what they are doing.

Tip #3:  Understand What You Are Renting And At What Price

It is recommended that you check with the property managers who deal with single family properties.  One area to find these managers is looking at the classifieds and reviewing the homes similar to the property you are considering renting.  Are the property owners offering certain incentives, such as free months? If these incentives are available, this is often a sign of heavy competition or a soft rental market; therefore, you may want to attempt another property type of a different neighborhood.

Try to drive around the different areas, contact property managers via advertisements, and talk to landlords as if you are an interested tenant.  The most significant issue here is to understand where the next tip is where you can conservatively and reasonably expect for low vacancy and rental income.

Tip #4:  Gaining The Correct Financing And Cash Flow

It is essential that you are aware of all the costs involved in purchasing a property, including the maintenance costs and estimated repair expenses.  Of course, the mortgage will be the greatest cash outlay, and this is the most significant cost consideration. You will need to pay approximately 20% or more in the majority of cases.  For example, purchasing a rental unit will require a person to pay a slightly higher mortgage interest rate, and having a good credit history can help with this issue. Private lenders for real estate may also be worth considering.

It is recommended that you obtain a strong handle on all the property expenses, and then review what the mortgage payments with taxes and insurance escrow will be.  For instance, approximately $150,000 property will begin with a $32,000 down payment along with closing costs. If you are able to clear at least $200 per month above out-of-cash pocket, then you could receive a return on your cash investment of approximately 10%.

Tip #5:  Obtain Equity At The Closing Table

It is highly recommended that you do not purchase any properties at retail market value.  If you are not able to obtain the property at an approximate 10% to 20% discount or its existing market value, then you should not do the deal.  You must be able to leave the closing table with equity as a cushion or as a future profit before selling the initial planned liquidation date.

Adam Hansen

Adam is a part time journalist, entrepreneur, investor and father.