Along with providing the opportunity to generate some extra cash flow each month, buying a rental property can also teach you a lot about real estate investment and serve as a platform for future investments. However, if you commit to purchasing a property without knowing what you’re getting into, it can lead to more trouble than it’s worth — literally and figuratively. That’s why it’s so important to research and learn what you can about real estate investment now.
If you’re thinking of buying your first rental property, here are some tips that can help you lay the groundwork for a successful investment.
Choose a Property with Potential
Whether it’s a short-term or long-term rental property, the location has a lot to do with how successful it will be. First of all, you want a location that is going to draw renters. Is it in a thriving neighborhood with the potential for high appreciation? Are there nearby attractions and easy access to basic amenities like grocery stores, pharmacies, and restaurants?
Also, consider the home itself. Calculate all the costs of buying and operating the property and weigh them with the estimated income generated by the property. If you predict significant cash flow along with great learning opportunities, that rental property might be the perfect one.
Plan Out the Down Payment and Financing
Unlike with a primary residence, an investment property will probably require you to make at least a 20 percent down payment, especially since mortgage insurance is not available.
When preparing to purchase your first rental property, start saving for a down payment as soon as you can. Having the money in hand will help you determine what kind of property you can afford and help you get the purchase moving along. Also, explore your options with financing so that you can determine what kind of loan will best meet your needs.
Secure the Property
One of the most important parts of managing a rental property is keeping it secure. Not only do you want to ensure your tenants are safe, but you also want to know that the home is protected from burglaries and other property crimes during vacancies.
There are many home security solutions on the market, but as a first-time investor, you will likely want to strike a balance between effective high-tech features and budget-friendly low-tech features. For example, the average cost of a quality alarm system is about $675, not including professional monitoring. Moreover, adding prickly bushes near the windows, shaping up the landscaping, and installing outdoor lighting can provide additional security for your property.
Keep It Functioning and Looking Good
As a landlord, you are responsible for various maintenance and upkeep tasks. Plus, you want the property to be in the best shape possible so that you can attract good tenants.
This might include basic maintenance tasks such as making repairs and renovations, mowing the lawn and performing other landscape duties, and regular house cleaning, among others. If you have the time and expertise, you can save money by doing these tasks yourself. However, many landlords find it most time- and cost-effective to hire a professional handyman, property manager, landscaper, house cleaner, and so on.
Knowing what you’re getting into will significantly increase the likelihood of your first rental property being a success. Remember to choose a property with high potential, and start planning for your down payment and financing from the start. Also, take the necessary steps to keep your rental property secure, functioning well, and looking nice. Most importantly, continue to research and learn more about real estate investment so that you can be well-prepared for your first endeavor!