When you do anything for the first time it is very stressful and property investment is no different. Your first rental home is a major investment, but you should make it as stress-free as possible. There are a number of tips that you should consider to ensure that your first rental property investment is going to be stress-free.
Advice Is Good But Do Your Own Research
Reading investment books, taking courses, going to a seminar and other learning processes will help you gain confidence in your decision. However, the books, seminars and courses should all be about how to select locations, on evaluating the rental market and the value of properties. The success that you have will be based on your own due diligence and buying the right property in the right area.
The first rental property that you have should be in the area you live in as you know what is going on economically. It is important that you know what the economy will support in the future as property investment is not a short-term option. You should also understand who the major employers in the area are and what drives people to or from the area along with whether things will look good in the near future.
Do Not Rely On Real Estate Agents
Many investors will look at working with agents that handle foreclosures to get a good deal. However, it is important to remember that these will be foreclosures listed on the MLS. This means that all of your competitors will have the same information and this could drive up the competition that you face and this will increase the cost of acquiring the property.
If you do some of your own marketing then you can find some motivated sellers. This gives you a greater opportunity to negotiate a good deal. Another approach you can consider is working with an experienced real estate wholesaler or a company such as Asset Column.
These are investors who are experts at finding great deals which they can flip to rental property buyers below the market value price. You will need to check their references before you work with them to ensure they know what they are doing. However a good one will know all about real estate investments.
Know What Rents And For What Price
You should check with property managers who generally deal with single family homes. You should head to the classifieds to check out the homes that are similar to the one you are considering. If the owners are offering incentives this could be a sign of a soft rental market. It could also show that there is some heavy competition so you might want to consider a different neighborhood or property type.
You should take the time to call rental adverts, drive around the area and talk to the landlord as if you were a potential tenant. The most important thing is that you need to know what you can reasonably expect from the rental income of your property.
Get The Right Financing And Cash Flow
It is important that you always know all of the costs including repairs and maintenance. However, the mortgage is going to be your largest outlay so it is important that you consider this. You will need to provide at least 20% of the price as a down payment. For rental properties, you will have a slightly higher interest rate, but a good credit history will help with this.
You need to have a firm handle on all of the costs then see what the mortgage payment with taxes and insurance will be. An example for this is a home costing $150,000 with a $32,500 down payment and closing costs. If you are able to manage $250 per month your return on the property will be around 9%.
Lock In Equity At The Closing Table
You should never buy at retail market value. If you are unable to get a home at 10 to 20% less than the current market value you should not complete the deal. It is important that you leave the closing table with that equity as either a cushion or a future profit if you choose to sell your property before the planned liquidation date.
If you are going to be working with a wholesaler that you meet at a local investment club, you need to ensure that you see their valuation calculations. You also need to complete some calculations of your own. You should give the wholesaler your requirements and if it is 15% below the market value then they know what they have to deliver.