Through the course of the professional life of most real estate investors, buying rental property is among the top investments made. This can be attributed to the constant cash flow it offers and the high rate of stability. As one would guess, many real estate investors are buying rental property and choosing to rent them out as Airbnb rentals or traditional rentals. For the novice real estate investor, if you’re looking for a bullet-proof method to buying rental property, you came knocking on the right door, my friend!
What are the steps that any beginner real estate investor can take when buying rental property?
Talk to others about it
You may not be too keen on the idea of telling people your investment idea, but in this case, it’s a must. New real estate investors must talk to local real estate investors and professionals in order to get the right idea of the local real estate market. Additionally, it’s a must to start working on your real estate investment network as you will need it more than you think.
Check your local listings and other investment companies; they might be able to connect you to a real estate investor that you could have as a mentor along your first few investment properties.
Figure out the financing
It would not matter if you’ve found the best investment property when you cannot finance it smartly. Of course, there are many real estate financing options that you can take into consideration when buying rental property. However, your focus should remain on getting the lowest interest rate possible and generating cash flow through the investment property. In other words, let’s say you’ve found the best financing option with the lowest possible interest rate on the market. However, you are unable to find a property within the price range of the loan. This might not work for you either.
To help you find more options for financing when buying rental property, read this blog post: Discover the Most Popular Real Estate Financing Methods.
Look for a rent-ready property
Yes, we all have that fantasy of taking a neglected property and restoring it into its previous glory. However, this is a real estate investment and you should not go into a fix-and-flip without knowing what it takes. Most importantly, when buying rental property, having to take the time to renovate it and find proper tenants for it can take a big chunk out of your cash flow. Not to mention your lack of experience in the field.
Many successful real estate investors do repairs on a property after the initial purchase. However, it does not exceed a paint job, some retiling, few updates and maintenance. Of course, with fix and flips, it’s all very different; having to fix plumbing or electricity can be very costly and hard to recoup the money fast with rental properties. Therefore, you don’t see many fix-and-flips turned into rental properties.
If you’re looking for information on fix-and-flips, read this: 5 Tricks To Save On Fix-and-Flips.
Widen your research span
This part implies not buying the first property that you see. You must widen your research, look at many possible properties and then make an offer to the one you believe will be the most profitable. In return, this gives you a better idea of what’s out there and what rental strategies fit your needs best.
To do so, it’s not a must to hire a real estate agent. Although, it can be quite beneficial to have a real estate agent as he/she can give you more insight. Most importantly, if you’re going to hire a real estate agent or realtor, make sure to go for one specialized in investment properties; he/she will have a better idea of your needs and wants.
When looking for an investment property, search in any way you find useful and will give you good results. Many successful real estate investors find properties through online search platforms, foreclosures, craigslist, and even the classic knocking on doors.
Analyze the property as a rental property
This is an inseparable step to becoming a real estate investor. With the technology of today, real estate investors are becoming smarter through strategizing their real estate investments to enrich their real estate investment portfolio. When buying rental property, real estate investors can go about using an Airbnb calculator to determine the revenues and expenses that are associated with any possible investment property. To take things more specifically, let’s say you’ve found 5 possible investment properties during your search. the next natural step is to determine which one suits your needs. Here, you can fully utilize a rental property calculator to give you the ins and outs of this specific property!
Consider using Mashvisor’s rental property calculator and make use of the 7-day free trial offered by clicking here.
Analyze the property as an investment
Analyzing the property as a real estate investment will naturally come next. This helps you determine the real estate appreciation to expect with your property along with other important real estate investing metrics such as the cap rate, cash on cash return, and even Airbnb occupancy rate.
Any property can be analyzed through an investment property calculator. This tool can give you a more advanced idea of what to expect from any specific property over the long-term. In case you didn’t already know this, Mashvisor’s real estate tools have an investment property calculator included!
For information on the uses of an investment property calculator, read this blog post: What’s the Use of an Investment Property Analysis Calculator?
Making an offer
When you find the best possible property to add to your real estate investment portfolio, it’s time to make an offer. If you’ve hired a real estate agent to help you through the process of buying rental property, then this shouldn’t be a problem as he/she will guide you through it. However, if you haven’t made offers before, one thing to keep in mind is that you should always stick to your budget.
A major important part of making offers on properties is a loan pre-approval letter. This helps the property seller identify the level of your eligibility to finish the real estate sale. As a matter of fact, it’s becoming very popular to only accept offers from property buyers with pre-approval letters.
Closing on the property
Closing on the property is not a difficult task, per se. However, you must specify in your offer what your terms and needs are, the costs to be taken by the property seller, and the costs that you’ll take on as a property buyer. Keep in mind that there are closing costs. Also, you must have a sum of cash to pay legal fees, title companies, transfer fees, etc. So, make sure you do your calculations beforehand to determine the amount of cash you need.
Readying your rental property and looking for tenants
After buying rental property, it’s your main job to make it approachable and find a proper tenant to occupy it. This marks your first step in becoming a landlord. Many landlords go for a property management company to take care of all that for you. This can relieve you of the stress caused by rental applications, calling references, and even maintaining the property yourself.
Final Words
As you can see, buying rental property is not the hardest thing to do in the real estate industry. You can do it as both a part-time real estate investor and a full-time one. Just keep in mind that buying rental property is a process that must continue till you get a substantial cash flow. So, don’t hesitate to invest in real estate; buying rental property is achievable by most beginner real estate investors! If you have any more insights on buying rental property, please share them with us in the comments section below.
Are you looking to buy your first rental property? Click here to start looking for and analyzing the best investment properties in your city and neighborhood of choice!