Investing in real estate can be intimidating to any businessperson. However, it can also be exciting and fulfilling. Here is Mashvisor’s guide to investing in rental property as a complete beginner.
Create a Rental Property Business as a Beginner
Learning how to invest in rental property takes dedication. Stay focused by treating your investing as a business. Above all, find a local lawyer that can establish a legal business in your state. You will need a taxpayer ID number in order to secure lending and for tax purposes. Forming a business will also help protect your personal wealth from liability. If you are going to invest money in property, you need to do it with professionalism. Establishing a business entity is your first step. Your lawyer will help explain the different legal forms a rental property business can take.
Establish Your Budget
As a complete beginner learning how to invest in rental property, your budget will be one key to your success. Investopedia ranks lack of capital at the top of its list of the 4 reasons small businesses fail. Your budget is not just the money that you allocate toward the purchase of your first rental property or Airbnb property. For example, you need to budget for basic business costs. These include insurance, home office automation, state fees, property taxes, and utilities. By creating a budget, you will know your investment limitations and not exceed them. Even those real estate investors with little money to buy rental property can succeed. The key is to make the most of what resources you have.
Mashvisor can help you easily find investment properties within your budget. Mashvisor has important tools you will need including a handy rental property finder. Learn these tools and use them.
Set Your Goals
Why are you investing in rental property as a beginner? Write it down. There should be many reasons. Not simply to, “Make money in real estate.” For instance, are you going to manage your business for short term cash flow? Will you also have a goal of earning money from the sale of your rental property? If so, when might you sell? As a complete beginner investing in rental property, only you can decide what your objectives are. Once you have your goals in mind, Mashvisor can help you look at each investment for return on investment.
Know Your Market
An important part of learning how to invest in rental property is knowing your local market. Mashvisor can show you how to find rental properties within a given area. However, you need to know if you are in a buyer’s market or a seller’s market. Think ahead to the time of year in which you will purchase your first investment property to understand more about the market trends you’ll be facing. Use tools like a heat map to find rental property and Airbnb property to invest in. Then visit them and do a neighborhood analysis. Will property appreciate in this market over the coming years? If so, what is the expected rate of return?
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
Know Your Costs
When learning how to invest in rental property, knowing your budget as a complete beginner is critical. However, understanding costs is tricky if you have not managed a rental property already. Key costs like real estate taxes, water and sewer, utilities and maintenance can be estimated by making calls to the town and suppliers. Mashvisor can also help you with a calculator to evaluate your rental property costs for profit and loss analysis. Since you are a beginner, your business costs will be spread out over a few investment properties, possibly just one. Be sure you know your cash flow projection by using a cash on cash estimator.
As a Beginner, Start Small & Buy a Sure Thing
Real estate investing should not be a gamble if you are a complete beginner. There will be a time to dive into a multi-unit property in need of serious upgrades, but that time may not be now. If you are a real estate investor with little money, start out small and buy somewhat less of a rental property than you can afford. On the other hand, if you do have money to invest in rental property, and this business will only be part of your wealth portfolio, you will need to decide on a number of properties.
Will you have multiple units with a minimum of equity, or one with a high equity stake. We suspect your bank will answer this question for you. Be aware that most banks require a two-year rent roll report as part of a mortgage application. By starting small, and with a high equity stake, you can build that needed rent roll. Later, you can pitch your expansion plans to a bank with confidence.
Think of Your Contractors as Partners
If you are just learning how to invest in rental property, you are going to need help. By contrast, if you run an Airbnb, your needs will be a bit different from a single unit rental on a long-term lease. However, both will require your time and energy. But, you are just one person and Airbnb rental properties, for example, need cleaning on a weekly basis. Every rental has groundskeeping requirements. You will need contractors to help with repairs and routine maintenance like gutter cleaning and HVAC maintenance. Treat these contractors as your partners.
Create a vendor list with backups for every major trade like electrical, plumbing, HVAC, cleaning, and landscaping. If one drops the ball, resist the urge to “fire them” immediately. As a real estate investor, try to find the contractors you feel communicate honestly. Stick with those that you work with best and use the others as your back up. Remember them on holidays. Negotiate for fair prices, but don’t be unreasonable if a job becomes more costly than estimated. Over time, you will come to need your contractors to complete repairs for you on short notice even when you cannot be there. Build two-way trust and always pay promptly. In other words, treat your contractors as you would your partner.
Accept Advice – Ask Questions
We have just spoken about how a beginner should treat a contractor as a partner. Step back and think about their typical business day. They are in and out of Airbnb rental properties just like yours all over your real estate market. When you have a situation to deal with, think of it as an opportunity to learn from these contractors about what they know. Ask how they have seen problems solved, where they view the market opportunities and any questions that’ll give you more answers to how to invest in rental property.
Here’s a little secret. A very large percentage of electricians, plumbers, and general contractors own their own rental property companies. They can be a helpful resource when you run into a problem. If you have a flooring contractor in your rental unit for an estimate, ask them what other rental property companies would do rather than just discussing rug styles. Your contractors can and will help you beyond the scope of their trade. They have a wealth of knowledge to offer, and if they feel like your partner, they will share it happily.
The key to success when learning how to invest in rental property as a complete beginner is to use all of the resources available to you. Start out your 14-day free trial with Mashvisor now. Start your new endeavor as a business and you will see a great return on your investment.