6 Tips For Purchasing Your First Rental Property

Posted On Wednesday, 06 October 2021 21:50

Income properties are very popular for people that want to make passive income while retaining a piece of property. The money generated over time can build a nest egg that can be used to potentially purchase another rental property. Once a buyer has a few rental properties, it might seem like they tend to get a new one every few years. Figuring out whether you should buy your first investment property is very important.  

Not all people are looking to build a real estate empire as they simply want to make a great investment that pays them monthly. With interest rates being incredibly low when compared to the past, this can be the perfect time to start looking for a rental property. Below are tips that can help make purchasing and managing your first rental property go smoothly. 

Landlord Or Use A Property Management Company?

Most people do not want anything to do with being a landlord as this can be a tough task if you haven’t done this in the past. Property management companies are immensely helpful as they handle everything to do with the property. You might have to put money in from time to time but the rates for these companies are far better than one would imagine. 

Property management companies take care of collecting rent, finding tenants, communicating with tenants, checking rental backgrounds, and obtaining proof of employment. The companies also understand the rights of tenants which can eliminate the chances of being sued. First-time investors should opt for a property management company as the company might set the rent higher than an owner would have ever. The fact that these companies take a small percentage of monthly rent makes them worth the investment. 

Save Over Time For Your Downpayment

Saving money over time for your downpayment will likely be the largest challenge. Freelancing can be a great way to earn supplemental income that you can put towards a rental property. With all of the remote opportunities available, you can easily find something to fill in your free time. There are jobs that you can do on autopilot like that of data entry or finding contact information for a sales team/professional. Keep in mind that you need to put money aside for tax season as you don’t want to dip into your rental property fund. 

Location, Location, Location

Picking a rental property in the right location will rely on a number of factors. Increasing demand for rental properties along with property values consistently increasing annually is ideal. There have been a number of people that invested in an area that was up and coming only to earn substantial amounts of money. 

Renters are going to want entertainment options in the area. Plans to build new entertainment options should also be a sign that the popularity of an area is increasing. Downtown Tampa and Charlotte are great examples of areas that would have been wise to invest in a decade or two ago. 

Keep An Eye Out For High Interest Rates 

What a number of buyers might not realize is that interest rates are higher for an investment property than a traditional mortgage. With interest rates as reasonable as they have been, locking in a good interest rate is a decision you will be proud of for years to come. If you do not understand which interest rates are fair, a quality real estate agent can help guide you through this process. With traditional 30-year mortgage rates hovering around 2.5 percent, there has never been a better time to buy.

Run The Numbers

Running the numbers of how much you will earn is important. You also have to incorporate taxes, expenses,  and potential repairs that you need to make. For example, replacing an entire HVAC system can lead to the owner breaking even on the property for the year. The value of the home increasing would be the only comforting factor if large repairs like this need to be made. 

Avoid Fixer-Uppers

People tend to want to start earning almost immediately from a rental property. A fixer-upper could have a myriad of hidden problems that could impact your ability to earn income. If you have the skills of a contractor, this can be a great opportunity to earn rental income then potentially sell later for a huge ROI. With this being said, finding a gem of a fixer-upper in the right location can provide income for a person for years to come. 

Purchasing a rental property can allow you to earn truly passive income if enlisting the help of a property management company. Use the tips above to ensure you have a good experience and potentially decide to invest more into real estate in the future.

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