Rental Property Investment 101: A Beginners’ Guide
Making your first rental property investment means striking a careful balance between two extremes. If you’re curious about purchasing rental properties, you probably fall into one of two categories:
- Ambitious, impulsive, and eager to begin
- Cautious, calculating, and careful
Real estate investing means balancing risks and rewards. It also teaches you to manage your emotions. Get the information you need about a property before purchasing, but don’t spend years collecting data. Ultimately, experience is the best teacher. Conversely, if you feel compelled to buy property without conducting your due diligence, give yourself more time to research.
Set Long-Term Goals
Most people invest in real estate to create passive income and retire. If this is your dream, determine how many rental properties you will need to acquire to meet your needs. Be specific about purchase prices and rental amounts (and use conservative estimates, this will be your livelihood, after all!).
The 1% Rule Rent Calculator
Most investment experts suggest charging 1% of a property’s value each month in rent. For example, if you own a $200,000 property, you could likely charge $2,000 in monthly rent. Yes, many rental properties make more than 1% each month. However, this careful estimate takes into account some of the risks involved in property rentals, such as units sitting empty between tenants.
Set Short-Term Goals
Once you’ve determined your monthly property investment targets, determine what you can afford to risk right now. Sure, you could throw your entire net worth into real estate, but it’s always wise to diversify. Also, you need time to learn and make mistakes in the real estate rental market before pouring your hard-earned savings into these investments.
If your version of financial independence involves managing five $250,000 properties, don’t jump in with both feet. Ask yourself – could you learn the ropes with one $100,ooo housing unit and expand your empire as your gain knowledge and experience?
Locate Properties
Depending on your investment strategy (and how much time you can afford to spend on this step), you can seek out off-market and seller-financed properties. Many investors avoid this time-sink by purchasing rental properties from turnkey providers like Cash Flow Properties USA.
Calculate Rental Property ROI
Once you identify a target investment property, carefully calculate your ROI (Return on Investment) over time. Make sure to include all costs, such as mortgage payments (if applicable), management fees, upkeep, and property taxes. Determine how many years it will take to break even, when you’ll realize increasing monthly profits, and when those profits will plateau (typically, after paying off loans).
Commission an Inspection
An inspector paid by you (not the seller) has a responsibility (and an incentive) to give you a clear picture of a property’s condition. Learn to read property inspection reports and attend as many inspections in-person as possible.
Find a Top Property Management Team
Locating a management company you can trust is a key part of investing in real estate. The countless hours you spend finding and vetting potential tenants, chasing down rent payments, cleaning/repairing units, and conducting maintenance could be better spent finding that next great property!
Cash Flow Properties USA (CFP) helps passive investors purchase and manage hands-off turnkey rental properties. Our teams acquire, fully renovate, and place tenants in these units. These investments feature 12-36 month leases and professional property management. CFP handles all property management tasks, including rent collection, repairs, maintenance, and bill payment.
Click here to learn more and apply to work with our team. After we approve your application, you can schedule a 1-on-1 strategy call with one of our investment counselors.
Best Wishes,
Dave Lundgren