Most investors choose to begin their journey in real estate investing by buying rental property. While it’s a smart move, buying your first rental property is not easy to do without proper guidance. As a beginner investor, you’re probably wondering “What do I need to know and what are the steps for how to buy rental property?” Luckily for you, we’ve got the answers. In today’s blog, we’ll provide you with the 7 steps needed for buying rental property in 2020.
How to Buy Rental Property in 2020: The 7 Steps
1. Educate Yourself About Real Estate and the Buying Process
There’s no doubt that it takes a lot of time and energy to buy rental property. Even if you plan to invest in Airbnb, investing in rental properties is a long-term business. To succeed, the first thing you need to do is educate yourself more about real estate. See if real estate investing is meant for you. Learn about the various investment strategies, property types, financing methods, risks, and rewards of rental properties. Get advice from realtors, landlords, and property managers. In addition, learn what you can from various real estate education sources, such as books, podcasts, and blogs. Speaking of blogs, check out Mashvisor’s daily blog for all things real estate. Here, you’ll learn everything you need to know about how to buy a rental property.
2. Work with a Real Estate Agent
Buying rental property in 2020 comes with many different variables. Therefore, it is recommended that novice investors partner up with an experienced real estate agent. While anyone can find an investment property for sale without one, an agent will help you avoid the mistakes beginner investors make during the purchasing process. Agents are also very knowledgeable about local housing markets, giving investors an additional edge. In addition, agents will help real estate investors save time by filling out paperwork and dealing with negotiations.
3. Set Your Goals and Prepare Your Finances
As the name suggests, the goal of an income property is to make money. But this can’t be achieved if you just buy rental property willy-nilly. You need to have a plan for both your investment property financing and investment goals.
As part of your research, you’ll begin to understand the various investment types and strategies out there. Start outlining specific goals based on the things you’ve learned. Are you, for instance, more interested in traditional long-term investments or Airbnb vacation homes? Is there a certain return on investment you would like to achieve? Do you plan on selling your property after a certain rental period? When you properly define your goals, you’ll be one step closer to achieving them.
Apply that same framework to your financing budget. Firstly, learn about how much money you need to buy rental property, including down payments, mortgage principal and interest, closing costs, etc. Then, start working on building your credit and saving for a 20% down payment. In addition, if you are investing for the first time, consider exploring ways of how to buy rental property with no money down, such as through the house hacking method.
4. Find a Profitable Location to Invest In
With the planning and learning stages of how to buy rental property completed, you can begin finding the best places to buy rental property. Location is easily the most significant factor when investing in rental properties. It plays a role in tenant demand, return on investment, property prices, and much more. Whether you plan to invest in your local market or out of state, you need to conduct a real estate market analysis. The best way to do that is to use Mashvisor’s real estate heatmap. Mashvisor’s heatmap will perform the analysis instantly, as opposed to the hours needed for manual research. All you need to do is enter the area you are considering investing in. Then, Mashvisor will help you quickly identify the best-performing neighborhoods in the rental market through a set of filters. You can customize the neighborhood analysis based on:
- Listing price
- Traditional and Airbnb cash on cash return
- Traditional and Airbnb rental income
- Airbnb occupancy rate
For example, you’re probably looking for a location where you can earn high cash on cash return. Set the filter and any neighborhoods that show up in green would be a great place to start your property search. Try it now.
5. Search for Investment Properties for Sale
After settling on a location, you can begin to search for cash flow properties for sale. With Mashvisor’s Property Finder, you can complete your search in a matter of minutes. Similar to the heatmap, Mashvisor’s Property Finder utilizes predictive analytics to help you find top-performing properties. In addition, it uses Airbnb rental data directly from Airbnb. By using the Property Finder, you can look for properties in multiple rental markets at once. As you would expect, you can specify your search based on various filters. These include:
- Property type (single-family home, multi-family home, townhouse, condo, etc.)
- Rental strategy (traditional or Airbnb)
- Number of bedrooms and bathrooms
You can try out the Property Finder if you sign up for a free account with Mashvisor today.
6. Conduct a Rental Property Analysis
The next step in how to buy rental property is to analyze potential rental properties for sale. In other words, you need to perform a rental property analysis. Once again, Mashvisor’s real estate software is here to help! Mashvisor’s rental property calculator is the only tool you’ll need for rental property analysis.
The calculator uses information from nearby real estate rental comps. It does require some input from investors like how they plan on financing rental properties. After entering inputs, the calculator will provide the following rental data for a selected property:
- Traditional and Airbnb rental income
- Rental property expenses
- Traditional and Airbnb cash flow
- Traditional and Airbnb cap rate/cash on cash return
- Projected traditional and Airbnb occupancy rate
- Optimal rental strategy
7. Make an Offer Based on a CMA
The final step is to make your offer. But before you do that, you need to conduct a comparative market analysis (CMA). If you followed step #2 and are working with a real estate agent, he/she can get a CMA report ready for you and help you make an offer. You can also find real estate comps on your own on sites like Mashvisor and value the property on your own.
And just like that, you’ve learned how to buy a rental property in 2020! To put what you’ve learned into practice, CLICK HERE to start a FREE trial with Mashvisor!