10 Tips for Rent Estate(tm) Investing Newbies
Renters Warehouse Blog
10 Tips for Rent Estate(tm) Investing Newbies
Looking for a quick and easy way to get rich?
Aren't we all!
But while the late-night infomercials may paint a tempting picture of earning money while you sleep -the reality is that with most investments -success is the result of hard work, or making a series of calculated decisions.
One of the best ways to grow your wealth, aside from falling into a large and unexpected sum of money, is by investing in income property -or, Rent Estate(tm).
True, Rent Estate(tm) isn't a silver bullet that will quickly and dramatically make you prosperous overnight -but it's a great way to grow your wealth nonetheless. Think of it as a secure and steady way to increase your reserves; allowing you to build wealth at a relatively predictable pace -thanks to the potential to earn cash flow, and benefit from appreciation and equity as the mortgage is paid off and as the property, ideally, increases in value!
If you're interested in owning rental properties -but not sure where to begin, no worries! The great thing about Rent Estate(tm) is that it's something that almost anyone can get started with, regardless of whether they have any experience with investing. With the right approach -and plenty of hard work, you too can find success with rental properties.
In this article, we'll uncover everything you need to do to set yourself up for success with income properties -and begin building your own rental property empire!
Set Clear Goals
First, you'll want to sit down and establish some clear goals for your real estate investments. What are your financial objectives? Do they center on cash flow -to earn, say $5,000 a month? Or, are they more long-term -such as owning ten investment properties in areas where homes are expected to appreciate? Once you know what you want from real estate -you'll be able to create a plan to make it happen, and determine how you will use real estate to reach your objectives. Maybe you'll want to buy one property every year until you reached your goals -or, maybe you'll want to look into financing options to determine what you need to do to get yourself into a position to invest. Once you've established your long-term goals, you'll have a clearer sense of direction -and will be able to work backwards, so to speak -taking steps to reach your goals.
Treat Investing Like a Business
Before you begin, you'll want to ensure that you have the right mindset. If you go into real estate investing treating it like a part-time hobby, you probably won't have much success. The only real way to make money from real estate - is by treating your venture like the money-producing enterprise that it should be! It's important to treat investing like a business -this means setting clear objectives, being organized, and building systems that allow you to work efficiently. Additionally -as time goes on, and you begin to scale your investments, you'll be thankful that you established a solid framework for your business from the start.
Knowledge is power! Before you begin your journey, you'll want to educate yourself on rental property to ensure that you're well-informed on real estate and rental property investing. Scour the net looking for informative articles from reputable websites, and get yourself a few good books on rental property investing. Many new investors make the mistake of diving in without spending any time familiarizing themselves with how property and the real estate market work. While you can learn as you go, brushing up on some basic real estate knowledge ahead of time will save you from making potentially costly mistakes along the way.
Find Your Niche
Next, you'll want to decide what type of properties you're going to focus on. Single-family units? Duplexes and triplexes? Are you going to invest locally -or long-distance? You'll also want to determine what type of returns that you're hoping to get from each of your properties. Being specific will help you to be more strategic with your investments; allowing you to choose only the best properties -ones that are going to produce a rate of return that's in line with your financial goals.
Don't worry! You don't have to rush out and buy a 30-unit complex when you're first starting out! Most investors start out smaller -with a single-family unit, or duplex. In fact, your first investment could even your own home. Starting small will give you a chance to lay a solid foundation, allowing you to learn the ropes before jumping into the bigger investments, where there's usually a lot more financially at stake.
Assemble Your Team
While first-time investors often feel that they have to go it alone -don't overlook the benefits of having a network of experienced professionals by your side. Before you start, it's a good idea to assemble a team -people that you can call on for property-related help and advice. If you're purchasing real estate -especially if it's out of town, it's important to find an investor-friendly real estate agent in the local area that you can work with. You may also want to secure an accountant -to find out how investing in property will affect you from a tax perspective. Finally, if you plan to invest in rental properties -do yourself a favor and connect with a reputable and experienced property manager. Establishing connections with professionals will save you from a tremendous amount of hassle -and a world of frustration.
Plan for the Unexpected
Don't forget to plan for unexpected expenses along the way. Vacancies, issues with tenants, and costly repairs can all take a significant bite out of your income, and it's important to have some funds set aside in case of emergencies. If you're planning to purchase a property that's in need of repairs -be smart. Make sure you have enough saved to make the necessary upgrades in a timely manner -to prevent your property from sitting empty while you have to cover the expenses! If you're buying a duplex, and are planning to occupy one of the units, you may want to look into obtaining an FHA 203K remodel loan. This would allow you to incorporate the cost of the repairs into the loan -a good way to make buying a fixer-upper a feasible option. Just remember that repairs often end up costing more than expected -so be sure to plan for some additional expenses along the way.
Run the Numbers
Now, it's time to crunch the numbers! Once you've found a property that you're interested in, run the numbers to ensure that it's a good investment. A classic rule of real estate says that a rental should yield at least one percent of the sales price per month. This means if you have a property that costs $200,000, you should be able to get at least $2,000 per month in rent. Of course -it's important to never make your investments based on speculation alone. Don't assume that you'll be able to get one percent per month. Instead, you'll want to make sure you base your calculations on facts and solid figures. Check to see what similar properties in the area are renting for on Zillow and Trulia -and connect with a local property manager or real estate agent to get their thoughts on the viability of a potential investment. Finally, you'll want to add up your projected expenses -including the mortgage, taxes, insurance, utilities, maintenance, repairs, and unexpected vacancies -and subtract this from your income to find your cash flow. Then, take things a step farther and calculate your cash on cash returns -make sure your yield is in line with what you're hoping to generate from your income properties.
Hire an Inspector
We can't emphasize this one enough! It's important hire an independent home inspector to check the property before you buy, to ensure there's no costly and extensive hidden damage -and to fill you in on the exact condition of the home. If time is of the essence and you need to make an offer quickly -make sure there is an inspection contingency included in your contract -this way, should the inspector finds any major problems, you'll be able to back out.
Don't Quit Your Day Job
Real estate can be an exciting time -but don't hand in your resignation notice at work just yet! Many experts advise against quitting -especially early on. Keeping your job will save you from having to spend all of your rental income on living expenses when you're first starting out, and will allow you to instead reinvest your profits back into your investments in order to maximize your returns. Once you have a few properties under your belt -and your cash flow begins to surpass what you're making at work, you'll be able to think about leaving.
While Rent Estate(tm) investing isn't a get rich quick scheme; it certainly can be an excellent long-term investment opportunity. With careful planning -and the right approach, you'll be able to grow your wealth and save for the future -the smart way!
Do you own Rent Estate(tm)? What advice would you give to someone who's just starting out? Share your thoughts with us!