Thinking about buying your first rental property?
From time to time I get asked how I got started buying rental property. Well in this blog post I want to share a little bit about my first real estate investment purchase.
From the first decision to invest in real estate to actually buying your first rental property, there is a lot of work to be done. This task may be daunting for the first-time investor. Owning property is a tough business and the field is peppered with land mines that can obliterate your returns.
My First Rental Property
Here is a picture of the very first rental property I purchased. It was a little two bed room house located in Rolla, Missouri. I believe it was less than 1000 sq ft and built in like 1950,
A common mistake for beginning investors is to believe that you have to buy a big (spacious), costly and newer home or else families looking to rent a home will not rent your house.
This is simply not true! You don’t have to purchase your “dream house” for your first or subsequent investment property.
The most important thing is to take an unbiased approach to all the properties and neighborhoods within your investing range.
So what is the average tenant looking for before they rent a home?
Most tenants are looking for the following: Affordability (rent price), good neighborhoods (safe), schools, jobs and amenities (malls, gyms, movie theaters, public transport hubs). So if your home has decent outward appearance (not falling apart), well maintained yard, and on the inside it has nice carpet, appliances, paint job then there is a strong chance that you will be able to rent your property fairly quickly.
Top 3 Things To Consider Before Buying Your First Rental Property
So what should you consider before buying your first rental property?
There are several things you should consider but in my opinion these are the top three:
1) The physical property, 2) neighborhoods, and 3) potential cash flow.
In general, the best investment property for beginners is a residential, single-family dwelling or a condominium. Single-family homes tend to attract longer-term renters. Mainly because families are generally better tenants than one person is because they are more likely to be financially stable and pay the rent regularly. As a landlord, you want to find a property and a neighborhood that is going to attract that type of demographic.
The quality of the neighborhood in which you buy will influence both the types of tenants you attract and how often you face vacancies. For example, if you buy in a neighborhood near a university, the chances are that your pool of potential tenants will be mainly made up of students and that you will face vacancies on a fairly regular basis (during summer, when students tend to return back home).
When you have the neighborhood narrowed down, look for a property that has appreciation potential and a good projected cash flow. After all the whole reason your are investing in real estate is to make money and build wealth, right?
Lets go back to my first purchase (above), the original owner was asking $39K for it and I purchased it for $32K.
Difference in $: 7,000.00
Difference in %: 17.95%
So as you can see I purchased the home for almost 20 % below the asking price. I rented the home for $425 a month until I sold it a few years later for $42K (just before the real estate crash).
Whenever you are considering purchasing your first rental property or any investment property you should always do a cash flow analysis. This is how an investor takes a look at how that a property generates cash flow from rental operations.
The main use for doing a detailed analysis is to figure out if your first rental property or any prospective investment property will ‘cash flow’ (Income minus Expenses is greater than Debt Service).
In most cases, investors want positive cash flow but for some properties, you may be willing to put up with a small negative cash flow before taxes.
Just remember when investing you make money when you BUY not when you SELL!”
Check out how buying investment property made me a millionaire and changed my life.
Buy Your First Rental Property Today!
I hope that this article has been informative.
By The Way, Are You Already A Home Owner?
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P.S.S Don’t be afraid to buy your first rental property today!