Want to invest in real estate but you’re not sure how to get started? Don’t worry, you’re not alone. Many aspiring real estate investors don’t know where or how to start investing in property. Some will read real estate books, magazine articles, reports, and check websites for properties for sale, but never really follow through. Maybe they’re overwhelmed by the amount of information they’ve received or got intimidated. But the reality is: real estate investing isn’t as difficult as it’s made out to be. After doing your homework and learning the different aspects of the real estate business, it’s time to take action. Here are 4 easy steps to start investing in your first rental property in 2019.
Note: Head over to our real estate investment blog for detailed guides on each step!
Step 1: Finding Property
First things first, you need to find a property to invest in. Thanks to advanced technology, this has become a simple task that you can do in a matter of minutes. Whether you’re looking for single-family homes, multi-family homes, condos, or townhomes that you can buy as investment properties, there are numerous online sources that will help you find what you’re looking for.
However, what’s important for real estate investors to do is to make sure they’re searching for homes for sale in good locations. The location of your first rental property is as important, if not more important than the property itself. You should buy investment properties in the best cities to invest in real estate or, otherwise, you’ll likely be throwing your money on a property that won’t make money. After checking that you’re buying property in a good location, use our Property Finder to quickly find the best homes for sale there.
Using this investment tool, you can search for income properties in up to 5 cities and use filters to set your own criteria. You can also set your budget, preferred type of property to invest in, rental strategy, and the number of bedrooms and bathrooms. The Property Finder will immediately filter search results and only show you potential investment opportunities that match your preference. These properties will also have the highest returns in the market of your choice. Sign up for a free Mashvisor account to find your first rental property in a matter of minutes!
Step 2: Analyzing Property
While finding property in 2019 is easy enough, the trick is that real estate investors need to make sure that the property checks all the boxes. Meaning, the next step in how to invest in property is to analyze its money-making potential. This is known as the investment property analysis and it’s a crucial step simply because not any real estate property can produce income.
What if you’ve found two identical homes for sale and you’re not sure which one to buy? The only way to make the right investment decision is by analyzing the profitability of the properties. But how exactly can you do that? Real estate investors calculate a number of metrics to analyze the rate of return on rental properties. The most important ones are:
- Cash Flow: The first metric is the monthly profits you can expect from an income property after paying all expenses. To calculate it, deduct the monthly expenses from the monthly rental income.
- Cap Rate: This metric evaluates income properties based on the amount of profit they’ll generate in relation to their current market value. It’s usually used by investors who buy properties in cash.
- Cash on Cash Return: The final metric tells you the ROI you can expect based on the amount of cash you’ve actually invested. It’s used to analyze properties you’re going to finance with a loan.
For more details, read: What Are the Most Important Metrics in Real Estate Investment Property Analysis?
Calculating these numbers assures that you’ll invest in income property that will give you an instant profit. If you don’t know how to calculate these real estate metrics, simply use an Investment Property Calculator (like the one Mashvisor provides). It tells you what numbers you need to enter and, once you do, it will do the math for you!
Step 3: Financing Property
Wondering how to invest in rental property as a beginner who doesn’t have enough money to buy real estate in 2019? Don’t immediately assume you can’t afford to buy an investment property. As long as you have a stable income and have a fairly long history of employment, you shouldn’t have a problem getting a loan and financing the investment. This is one of the best things about real estate – you can make money using other people’s money!
There are numerous rental property financing options available to investors that allow them to buy real estate with no money down. For example, you can turn to private money lenders, hard money lenders, seller financing, using a lease option, etc. There are also other more creative methods to buy property with no money like exchanging properties, buying with a partner, and assuming the seller’s existing mortgage and paying it off instead of a down payment.
So, learn about all of these options and determine which best suits your needs and financial goals. And after finding and analyzing the income property, it’s time to take action and move forward with the purchase. Hire a real estate agent to help you approach the seller, make an offer, negotiate and close the deal. Now you’ve become the proud owner of an investment property!
Step 4: Managing Property
Now that you’re committed to a rental property, as a landlord, it’s your responsibility to manage it to start generating income. The main tasks associated with managing a traditional rental property include:
- Finding tenants: You don’t want your property to sit empty. So, start advertising and marketing the rental to attract tenants to occupy it.
- Screening tenants: Not every tenant you find will be a good one. This is why you need to go through a screening process to select the right tenant who’ll pay rent on time, have a longer tenancy, and won’t create problems.
- Setting the rent: It’s important that you set the right rent price to attract tenants to your property and make cash flow. To do so, real estate investors do a rental market analysis to see how much comparable properties in the area rent for.
- Collecting rent: Having a steady stream of rental income is also important to assure positive cash flow. To make sure you have that, set a date to collect rent each month and strictly enforcing late fees.
- Maintain the property: Successful investors keep their rentals in top condition. So, make sure you regularly examine the property and check for anything that needs repairs. This keeps your tenant happy and increases the value of your property.
You can hire professional property management to handle all of this. However, we don’t recommend beginner real estate investors to turn to these companies just yet seeing as they’re pricey and you want to make/save money from your first income property. In addition, if you’re looking to invest in vacation rental property which you rent out to short-term guests, property management becomes a slightly different story. In this case, I recommend reading this: Key Aspects of Short Term Rental Property Management.
Final Words for Beginner Investors
It’s easy to get overwhelmed when you learn how to invest in property for the first time and venture into the real estate business. But don’t give up on your dreams! Once you get the hang of property investing and making money from your first investment, you’ll have the knowledge and experience to buy more rental properties and build a real estate portfolio. For now, the most important step is to take action. So, what are you waiting for? Start out your 14-day free trial with Mashvisor to find and analyze your first rental property in no time.