12 Expert Tips For Novice Investors Buying Their First Rental Property
CindyYou want to start investing in real estate to reach financial freedom but don't know where to start. Investing in one is a great way to accumulate long-term wealth. It’s not just monthly cash flow; it can also serve as a retirement plan. Of course, real estate does come with risks, so you want to know these steps to mitigate risks before buying your first property.
1. Financial Preparation
Before buying a property, you must review your finances. You must consider your credit score, credit history, savings, and financial stability. You must also consider property tax, insurance, maintenance expenses, and other unpredictable expenses. If you understand your financial situation, you’ll know what type of property you can afford.
2. Location
Location is so important to renters when buying your first property. Is it in a safe area and close to a desirable location? Is it in a flood zone area? What about HOA? Location matters when you buy a house, apartment, or condo. It can be in a tourist area, near a college campus, or in the countryside. The location determines many factors.
3. Financing
Buying your first property requires a chunk of money since you need a 20 to 30 percent downpayment. You can’t think about finding a tenant and collecting checks if you don’t know how to finance your first property. Many fees are involved, such as insurance, property tax, property managers, and maintenance expenses. Every action requires decision. What move are you going to make?
4. Legal Obligation
In any state, there are landlord-tenant laws to protect both landlord and tenant. You can’t ignore the law since it can jeopardize your portfolio. Before investing in anything, you want to know what you are getting into and what steps you should take to mitigate risk. The landlord and tenant both have their roles to play. Landlords are responsible for maintenance issues, rental payments, security deposits, disbursing keys, and contracts.
5. Know Your Expenses
Investing in anything requires money. As landlords, you will have expenses to keep up with your property. You can either do everything yourself or hire a reliable team to help. With a team, it can help you navigate challenges you may face, maximize your returns, and make sure everything manages smoothly.
6. Management
How many properties do you plan on owning? If you plan on having more than one, you might consider hiring a property manager. In a perfect world, you might leave the tenant alone and pray they pay rent on time monthly. However, that is never the case. There will be an emergency call for maintenance. If you don’t have time, you need to budget for hiring someone.
7. Financing Option
When preparing to buy a property, you should do your research to determine your financing options. Not everyone has cash upfront and can afford to pay for a property in full. It’s better to know where you stand financially because you might not get approved, or the lender might approve you for a certain amount.
8. Outdoor Area
When buying a property, you might consider having a family renting the place and you might consider getting a home with a large deck, patio, or backyard. If you live in a warmer climate area, people will be spending time outside, so an outdoor space would make it ideal for your renters.
9. Ideal Tenant
Once you go through all your financial situations, you can think about finding a tenant. Who do you want to rent your property? Is it students or families? The quality of your home plays a big role. If students are your tenants, they don’t care much about the quality of the place, but a family might.
10. The Right Property Type
You can buy many properties, but you must decide whether they are residential or commercial. Do you want your family to live in a house, duplex, triplex, or fourplex? Or do you want commercial space to rent out offices, industrial, and retail spaces? Every investment has its pros and cons, so you want to think about it before making the decision.
11. Don’t Skip Inspection
Many people don’t even consider going through a house inspection, but you should. You can save so much money in advance if you know what house issues it has. A big purchase like a property should be inspected because you don’t know what’s going to happen in the future.
12. Exit Strategy
If you buy a property, you might have an exit strategy. Some investors hold certain properties long-term, while others hold them short-term. You can keep the property long-term, sell it for appreciation, or refinance to leverage equity for future investments. You can keep or sell your property depending on your financial goals.
She started her blog, The Money Dreamer, when she realized the 9-5 job was not the lifestyle she wanted anymore. After designing for a while, she wanted a more meaningful life, which was freedom, so she decided to venture out. She took action so that she can live her dream life and decided to help people to live theirs by helping them how to save, budget, and invest.
