5 Things You Should Do Before Buying a Rental Property
5 Things to Do Starts with…
Step 1: Your Big Why?
Buying Your First Rental Property can be a paralyzing event for some while others will jump right off the couch.
At the end of the day, it’s important to understand who you are as an investor and why you will use your rental property to make a better life for yourself. This comes down to narrowing down your “BIG WHY”. Meaning, what is the reason you will follow through on accomplishing the goal you have in hand and does this goal line up with what you want to accomplish.
Step 2 : Analyze Your Market
This can include the following :
- Understand the job growth
- Crime Statistics
- Quality of Schools
- Diversification of Employers
- Population growth
- Median income projections
There are plenty of paid and free tools out there to assist you in creating your own analysis. Some of my favorites include:
Naturally, schools should be considered more important when you’re looking at 3+ bedrooms, but, you’ll wish to consider sustainable features in a community while finding a equal growth of cashflow for rental property and appreciation.
Step 3: Compile the Type of Property You are Looking for Based Upon Your Why
Finding a property because it simply provides a profit stream seems sensible, but, there is more to it.
If you’re working 50+ hours per week in a W2 job, owning a 4 bedroom rental house with 1+ acre of land is not going to be feasible given the work involved. So, find a rental property that meets your financial goals but will be able to provide you just enough workload so that you can focus on scaling your operation.
This can start on Zillow.com, Redfin.com, or preferably our home search site, but, make sure you have a means to track your search, save your search, and educate yourself on market conditions.
Step 4: Find a Realtor that Invests in the Type of Property You Will Buy
Sure – you can shop around for real estate agents at first. Garner their experience, understanding of financial mortgage products, see if you’re a good fit given personalities, but in the day, you need a realtor that has done what you will be doing.
So, if you decide you want to buy a four unit building, he’s a real tour that owns a four unit building. Before looking at properties, pick there brain and make sure that you’re going to follow through and buying the property. You don’t want to waste their time and they certainly don’t want to waste yours.
Step 5: Educate Yourself on Mortgage Products Available
Now, if you were simply going to buy a home and not occupy it, you may find your options to be fairly limited. Meaning, that a 25% down payment will likely be expected, a slight bump in mortgage rate to make up for the non owner occupied status, but, still obtain 30 year amortization.
On the other hand, if you were able to occupy the property, your down payment to be as little as 3%, mortgage interest rate will be lower, and obtain 30 year amortization.
Problem is…occupying the property requires “house hacking” or simply occupying the property but finding a means to generate rental income from the existing units or space. This can include living in a four unit building and renting out the three other units. This can also be renting out the bedrooms in a four bedroom home while you occupy one bedroom. Again, it’s leveraging favorable owner-occupied mortgage products and generating rental income to make your living expense less, paydown mortgage principal, and obtain the tax benefits of homeownership.
Ready to start your journey to building wealth through real estate “buy and hold” investment?