Tips For Buying Your First Rental Property
PRMG Driggs
PRMG Driggs Spanish Fork, UT
Published on May 16, 2022

Tips For Buying Your First Rental Property

Hi there, are you on the verge of buying your first rental property? If yes, then I have some information that could make the difference between a rental property that is a ladder to an increasing success or one that can be a drain on your resources.

Verify your investment mortgage eligibility (Jun 27th, 2022)
  • What type of property investor do you want to be?
  • Research locations
  • Consider potential cash flow
  • Choose the right kind of financing
  • Understand landlord-tenant laws

Did you know that the success of a rental property is almost entirely dependent on the steps you take before you actually buy the property? New property investors think the performance of their property is determined by the things they do after they buy the home.

This thinking is wrong.

Seasoned investors know that the amount of work they put in before they buy a property is the key to how much money they eventually make on the property. This is why they invest a lot of effort in the buying phase of the investment, to avoid having to work very hard afterward.

Verify your investment mortgage eligibility (Jun 27th, 2022)

Successful investors know something that often eludes investors who are just starting. They recognize that profit is made when you buy and not when you lease your property to a tenant or when you sell it. A rental property’s income earning potential is often fixed at the time of purchase.

This means that in order to make a success of your initial foray into property investing, you must have access to the tool and skills used by more experienced investors. In order to have the same level of success as them, you must follow the same steps and strategies they use.

This article will show you how to do that.

Verify your investment mortgage eligibility (Jun 27th, 2022)

Tips for buying your first rental property

1. What kind of property investor do you want to be?

The rental property market is vast. Rental properties come in a wide variety and there are also different approaches to investing in properties. Do you want to invest in commercial or residential properties? If your focus is on residential housing, should you start with a single-family home, a multifamily home, or a condo?

After you buy the property, what will you do with it? Are you likely to make more money as a buy-and-hold investor or are your skills more suited to flipping houses? What is Buy, Rehab, Rent, Refinance, Repeat (BRRRR) and is this a strategy you should be thinking about? Do your goals align with Short-Term Rentals? (STR) The kind of property you choose and the investment strategy you adopt will have implications for your experience as an investor.

2. Research locations before you buy

The location of the property is more important than the property itself. The neighborhood where you buy your property matters more than the physical appearance of the property. It is better to buy an average-looking home in an attractive neighborhood than to invest in a great-looking home in an area no one wants to go to?

Verify your investment mortgage eligibility (Jun 27th, 2022)

What are the things that define a location as good? Look for a location with plenty of job opportunities (several big employers across different industries), low crime rates, a selection of other amenities (schools, libraries, shopping, and entertainment centers), and good physical infrastructure. To know if a location is good, check the job growth rate, demand for rental properties, and the rental rate. Some markets will have a strong economy and property values climb every year, but it might be hard to find high enough rents to cash flow. Other areas might have amazing cash flow, but be in rougher neighborhoods and a slow economy.

3. Consider the potential cash flow

How much money can the property potentially put in your pocket every month, after you have deducted all expenses? To answer this question with any degree of accuracy, you need to know the projected total monthly income from the rental versus the projected monthly expenses.

A few of the specific numbers you should look at when evaluating a property are gross income, vacancy rate, recurring expenses (maintenance, mortgage, property management, professional fees, etc.), cap rate, the 1% rule, and cash-on-cash return. If you have questions on any of these terms or how to estimate costs and cash flow, reach out to me via email at: zstiles@prmg.net .

Verify your investment mortgage eligibility (Jun 27th, 2022)

If the property is already being used as an investment property, assessing its performance will be easier; the current owner should be able to provide most of the information you need. Make sure you request and review all documents such as the current leases, rent roll, and even the rental income pages from their tax returns to see actual profits and losses.

4. Choose the right kind of financing

There are several ways to finance your rental property. The right method for you will depend on your chosen investment strategy and your short-term or long-term objectives. An investor who is using a buy-and-hold strategy would typically find a conventional mortgage more beneficial. But if your preferred investment strategy is to flip houses, you may find a conventional mortgage somewhat restricting.

The two most popular options for financing a rental property are conventional mortgages and hard money loans. It is also possible to finance your property using a private loan. The kind of financing you use will affect the cash flow from the property. The more “flexible” the loan is to qualify for, the higher the rate will be. If a conventional investment loan was at 6%, then a DSCR loan might be 7.5%, and a hard money lender might be 10%. You can imagine how the interest differences could cut into your profits if not planned for accordingly.

Verify your investment mortgage eligibility (Jun 27th, 2022)

5. Understand landlord-tenant laws

As the owner of a rental property, one of the things you constantly have to deal with is the possibility of someone bringing a lawsuit against you and your business. That person could be a current or past tenant, a random visitor to your property, or someone doing some work within the premises.

In order to minimize exposure to legal liabilities, it is important to understand your legal obligations as a landlord. Before you buy a rental property or lease that property to tenants, take the time to what your state and municipality say about various aspects of owning a rental property. It might be a good idea to talk to real estate attorneys in that state for advice. Many pitfalls can be avoided by setting up your lease agreement the right way and relying on a good property management company to help you manage the properties and tenants.

One such example of a great property management company in the Fort Collins, Colorado area is: https://www.onsiteproperty.com/

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Show me a quote to buy/refinance an investment property (Jun 27th, 2022)
PRMG Driggs
PRMG Driggs Spanish Fork, UT
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