How To Buy Your First Rental Property
If you’re thinking of investing in rental property, you’re on the right track. Rental properties are a great way to create passive income and build wealth over time. But buying your first rental property can be daunting – especially if you’re not sure where to start. In this post, we’ll walk you through the process of buying your first rental property. We’ll cover everything from finding a property to financing your purchase. So read on for tips on how to buy your first rental property!
Tip #1: Do Your Homework
The best way to find a rewarding rental property is by planning ahead. Before you get too far, you need to plan what you want to do and how you plan on doing it. Are you looking for a single or multifamily property? What type of area are you looking to be in? Do you have a specific price range in mind? Are you going to manage it yourself or seek the help of a property manager? These are just a few of the questions you should answer. You should have a good idea of your goals and how you plan on achieving them before you do anything else. As rewarding as a rental property can be, it can also engulf your business if you get involved in a bad property. Once you know the area and type of property you are looking for, you can begin to get involved with the numbers.
Tip #2: Choose the Right Location
One of the most important factors in buying a rental property is its location. The golden rule of real estate investing still applies: proximity to desirable areas will contribute to increased demand and value, which means landlords can increase their asking prices as well! As a result, prospective landlords need to be aware of where they intend to buy. The location in which a property is located will determine many factors, not the least of which may dictate how the property is run. If, for example, the property is acquired in a tourist destination, it may be better served as a vacation rental. Properties close to college campuses may be best suited for student housing. Case in point: The home location will determine just about everything moving forward, so learn about a location before buying in it.
Tip#3: Know Your Legal Obligations
Landlords are held to strict legal obligations. In addition to the leases their tenants sign, each state will levy its own laws, to protect both landlords and tenants. That said, it pays to know the laws you must abide by when acting as a landlord. Nothing will derail a successful real estate investment faster than ignorance of the law. Before buying a home, make sure you know exactly what you are getting into and the steps you can take to mitigate risk.
In landlord-tenant law, landlords are responsible for five key areas. First, landlords must oversee the management of the security deposit. Landlords always have the right to charge a security deposit, but state laws dictate how much can be charged. A landlord is also required to disclose the owner of the property. Essentially, this disclosure means clearly telling the tenants (often in writing) who owns the building and how to contact them for rental payments, maintenance issues, and more.
Landlords are also in charge of disbursing keys or delivering possession of the unit to tenants. This is typically done after the lease is signed or at an agreed-upon time. Once tenants are in the unit, landlords are required to maintain the property as decided by the lease agreement, and state laws. Finally, landlords are legally obligated to a certain degree of liability outlined by that state’s laws. Always confirm with state and local laws to ensure you meet the correct legal standards as a landlord.
Tip #4: Choose The Right Type of Financing
The first step to investing in a rental property is choosing the right financing. There are many options, but one of them will have more benefits than others depending on what you want out of your investment-long term appreciation or monthly cash flow? Both of these start with what type of financing you use. The higher your monthly payment, the less cash flow that is available. Most investment loan programs require anywhere from a 20 to 30 percent down payment. Additionally, the homeowner’s insurance is typically higher than an average primary residence. Other fees must be accounted for with a rental. If you are using a property manager, they will typically charge 8-10 percent of the monthly rent. There are also landscaping and snow removal fees that must be accounted for.
Finally, you need to have a reserve fund for the inevitable clogged toilet or broken appliance. You will often need more money than you thought, and the cash flow may not be as high as you anticipate. Before you get any further, talk to your lender or mortgage broker to find out all of your financing options and the anticipated monthly payment. Also, reach out to a fellow investor to get a better idea of the monthly or annual costs for the property that you may be missing.
Real Estate Partnerships
If purchasing a rental property seems like too big of an endeavor, there are other options that require less capital and less commitment. Consider partnering with a company that specializes in turnkey real estate development and fix and flips. They simplify the real estate investment process and save you both time and money. With this method, you can benefit from having real estate experts source off-market property for you and deliver a turnkey property. This is a great option if you are new to real estate investing or interested in scaling your investment portfolio and increasing productivity.
About Jim Thorpe & Summit Capital Partners
Jim Thorpe is a Seattle-based entrepreneur, , and real estate expert with over 30 years of experience in real estate development. He works to find high-demand properties in low inventory areas for both developers and homeowners alike. One of his specialties is locating single-family homes in property parcels zoned for multi-family development. His rental portfolio now includes houses, apartments, and commercial properties. Thorpe’s dedication to his business has led to city-wide growth and development in the real estate sector.
Summit Capital Partners is a real estate development and management firm that operates out of Puget Sound and is owned by Seattle real estate expert, Jim Thorpe. They work to acquire off-market real estate and specialize in developing risk-adjusted solutions, allowing an assets’ value to increase over 6-12 months. Summit Capital aims to make a difference in the community where they do business.