The BEST methods to Buy Your FIRST Rental Property

The BEST methods to Buy Your FIRST Rental Property

Buying your first rental property can be daunting, especially if you’re unsure how to get started or what it will take. You probably already know that real estate is one of the best vehicles to grow your wealth, but the process of buying and maintaining those properties takes time, patience, and not a small bit of knowledge. Like I said … daunting!

Well, I’m Kim, and in this Article we’re going to take this scary and overwhelming process and simplify it so you know exactly how to get started on buying your first rental property. If you’ve never bought a house before, then you’re in the right place to get your feet wet. Are you ready? Let’s go!

Workout Details

The first step is to work out a few details. What sort of property are you looking to buy? What is your situation? Where do you want to live and how much money do you have for a down payment? Also, how much time are you willing to spend looking at properties and are there any constraints on how you might be borrowing or leveraging funds?

For a lot of people who are starting out with their first property, a duplex or triplex is a popular option. This allows you to live in one unit, while you rent out the other, drastically reducing your monthly costs. In effect, you have your renter paying for your property — or at least for a good chunk of it. So, let’s presume you’ve done your due diligence and you found the right place that fits your situation.

Of course, I don’t know your situation so I can’t give you any specific recommendations here, but I think the duplex idea is pretty popular for a reason — it works! Anyway, let’s talk about your time. Specifically about how time is the most valuable thing that you have. Without it, your options become more limited.

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Talk to a Lender

So, the first thing I would do is talk to a lender. This way you’ll know EXACTLY what you can qualify for so you don’t waste time looking at properties that are out of your price range. Plus, if you’re pre-qualified then you don’t have to scramble at the last minute because you know your funding is already secured.

Most places have multiple people bidding on them, and if you can be first with the offer and you have the money ready to go, that can give you a leg up on the competition. Timeliness matters. The faster you are, the better deal you can get.

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Look at Properties

Second, once you have your lending secured, it is time to look at properties. And this can actually be the fun part. Everything that is in your price range is worth checking out. This might mean driving around and looking at properties. Or you might go on tour with some realtors who will take you through their available properties.

It could also mean talking to friends and family about what they’d want in a home, or even just walking around your neighbourhood and taking mental notes about what might be up your alley. Keep your eyes open and you might be surprised at what you notice with available properties that you might not have seen just a few weeks earlier.

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Determine Cash Flow

Third, you will need to determine the cash flow of the property. This is actually the most important aspect of buying an investment property. It helps you determine whether or not it is a good investment. In reality, 95% of properties don’t make sense to purchase for an investment.

They actually will lose you money. At a certain price any property could be a good investment, but it doesn’t mean that is the price you’re paying. It is really important to understand the numbers. And a lot of it has to do with how much you have to invest.

Naturally, the more capital you have in reserve, the more leverage you’ll have when negotiating with sellers and when buying new properties. And, if you have no money, then it’s hard to make any deals happen. No deals on the property means you can’t get financing.

Or maybe the renovations costs are too high. It might not be the right time for you with a particular home so it’s best to just let it go and release it back to the market. It may be better suited to someone who has cash reserves that will make this a better deal for them.

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Start making offers on properties

The fourth thing to do is to start making offers on properties. This probably seems obvious, but believe it or not a lot of people are afraid of this part, or they just don’t do it. Making an offer doesn’t mean you are stuck with the property.

It is really a way to express your interest and that you would like to explore the opportunity further. So, how do you know when to make a real estate offer? Well, it’s not quite as simple as just seeing something and offering a price. In fact I tend to think of three parts to how to make offers on properties: First, figure out what the property is worth by looking at other similar properties or houses in your area.

These are called “comparables”. Sure, you could ask for an appraisal if you have time, but it’s better to get an idea of what it would cost to buy before you start negotiating with sellers. Check out online sites like Zillow or Trulia to see what similar houses have sold for to get an idea of what a good price is. Second, look at the neighborhood where the potential property is located. Is it nice? Are there any bad areas nearby? What type of school system does it have?

How many people live there? These questions will help you decide if this is the right place for an investment. Third, consider whether or not this particular property meets all of your needs. If so, how much will it cost to renovate it to how you need it? Does it need a paint job? New roof? Landscaping? All of these factor into whether or not you want to make an offer. Okay, so after you’ve made your offer what is next?

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Inspect the Property

The last part of the process is to make sure you inspect the property. This isn’t just you going through and looking at things. You will want a professional to look at the house to determine if there are any issues. These property evaluations are often a part of the process and many sales are contingent upon the result of the inspection.

Have you inspector check the roof, the foundation, the electrical system, the plumbing and everything else they can. The more you know, the better your position. It doesn’t help if you get a killer deal on a house, but the repairs on the foundation and electrical system will double your overall costs.

Knowledge, in this case, is definitely power. It’s true—when you’re first starting out as a landlord, it can be tempting to feel overwhelmed by the prospect of buying your first rental property. It’s a huge responsibility—and it can be hard to know where to start.

Luckily, there are tons of resources out there that can help you start down the path of owning your own rental properties. And while properties are a great option as an investment vehicle, you may find them hard to start with. In that case I’d definitely recommend investing in the stock market. Specifically, look at index funds.

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The BEST methods to Buy Your FIRST Rental Property

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