Real estate investing offers numerous benefits also in rental property investments. It is a great means to acquire great wealth in a small time. The rental properties are the highly preferred options. This type of purchase requires a huge investment.
Thus, you must be extra cautious and understand the entire process well before taking any step. This will offer a guarantee of making a safe investment. For the first-time investor, professional support can be extremely helpful. The guidance and support you will get will offer you the best results.
Given the vast investment opportunities considering rental real estate is highly beneficial. You have to begin somewhere to boost your income and replace your traditional 9 to 5 job.
But it is vital to avoid getting caught in the excitement of purchasing a rental property. You must make sound business and financial decisions with a good solid plan to help achieve success.
Although it might be exciting to invest in real estate for the first time, there are potential side effects. So, ensure you are taking the decision seriously. Besides this, consider the top 10 tips mentioned here for your first-time real estate investment. They will help make the right decision about the investment.
1. Understand if you are capable of being a landlord
The most basic thing you must see is if you can be a landlord. No doubt you can hire someone to manage the property, but it will cost you a great amount which will eventually reduce your profit.
The owners who have one or two homes generally save that money by doing the repair jobs themselves. But remember, it will change once you increase your investment and purchase more properties.
So consider all the aspects of owning a property, like if you can handle the repairs, maintain the property, and other essential things, and then decide the right course of action.
2. Pay down personal debt
Investors generally take debt to the investment portfolio strategies. It is something that an average person must avoid at every cost. When you have unpaid medical bills, student loans, children who will soon attend college, then investing in a rental real estate property might not be the right move for you. This is because being cautious is the key.
You don’t need to pay the down debt for your real state, which is greater than the cost of the property. It is calculations you need to make to avoid putting yourself in a position where you later lack the cash you need to pay the debt.
3. Secure a down payment
Investment properties require the investors to make a huge down payment, then the owner-occupied options. It happens because of the huge approval requirements.
Remember the 3% of the investment you have put down for the current home will not work for an investment property. You must have at least a 20 % down payment readily available. It is essential when mortgage insurance isn’t available.
So make sure to consider your financing options before taking a step.
4. Identify the right location
As a beginner, one will never prefer to invest in a rental property located in an area that degrades with time. A location that is growing fast with a revitalization plan underway will serve as the right location for your investment.
When choosing a rental property, find yourself a location that comes with no property tax, plenty of amenities. Besides, you were also looking for low crime rates, a good job market and access to public transportation.
5. Buying or financing
You need to question if you are ready to purchase a property or wish to finance. The decision depends entirely on your investment. By paying cash will help you generate positive monthly income.
For instance, let’s consider an investment property of $100000. With the taxes, rental income depreciation, and other aspects, you will get a 9.5 % annual return on investment. But remember, in such a case financing the investment will offer better returns.
6. Know the higher interest rate
You might have found the cost of borrowing money in 2020 to be extremely low interest. But you need to know the interest rate for investment properties will be higher than the traditional mortgage.
When you decide to finance your investment property, you will require a low mortgage payment that does not take up your monthly profit.
7. Invest in landlord insurance
You must invest inaccurate insurance for your new investment. Besides the homeowner’s insurance, you can consider landlord insurance as it will help secure your property. This type of insurance covers the loss in rental income property damage and the liability protection when the tenant or a visitor suffers an injury due to the maintenance issue in the property. The insurance amount will help pay for the damage suffered.
8. Avoid fixer-upper
Although you might be tempted to purchase a house that you can get at a low cost and flip into a rental property, it is something you must avoid. Unless you have a contractor by your side who can offer the quality work at a cheap rate or you yourself are skilled at performing large care home improvements, it is better to avoid such an idea, or else you would pay a huge amount for the renovation. Consider looking for homes that are priced lower than the market and require only minor repairs.
9. Identify the operating expenses
Investing in a property without understanding the expenses you have to make to maintain it will lead to great trouble in the future. Generally, the operating expenses will be between 35% to 80% of the gross operating income.
Consider the situation where you have $1000 as rent, and the expenses of the property come to be around $600 per month. This means there are 40% operating expenses.
By understanding the operating expenses, you can identify a suitable rent price and other aspects before you actually invest in a rental property.
10. Know the legal obligations
Investing in a rental property without knowing the legal obligations might not be a good idea. It is a must that you stay aware of the landlord-tenant laws of your state. For instance, you must know about the tenant’s rights and other obligations about the lease requirement, security deposit, fair housing, eviction, etc. to avoid any legal issues later.
Make sure to identify all the laws and understand them well before you take the next step of investing in a rental property. With proper knowledge, you will know you can handle real estate.
Investments in rental properties have become highly common. However, to guarantee you benefit from the available opportunity, you must have a clear idea of the possible options and details.
Consider contacting Private Capital Investors to get all the help you need. The professionals of our firm are highly skilled. They will help you identify the right opportunity to guarantee you make a fair investment.
With our help, you will invest in a property that brings you great returns. Instead of taking a risk with the investment, you should contact us to get all the help you need with your first-time rental investment.