5 Things to Consider Before Buying a Rental Property

Investing in real estate is often seen as Wealth 101. It’s been used by millions of people across the world to increase their portfolio and build passive income for themselves and their families. 

Investing in real estate is not for the faint of heart. Here are a few things to consider before buying your first property. 

Rental Property Tip #1: Can You Handle a Fixer-Upper?

Some investors love investing in fixer-uppers since they can get a good deal. These are homes that are structurally sound but need a lot of work before a tenant is willing to rent it out. 

On one hand, these can be great. With a little elbow grease and some cash, these homes can turn into great investments for the right people. 

On the other hand, you either need the cash to pay someone to fix it up or have time on your hands and be fairly handy. 

If you don’t have extra cash sitting around and aren’t able to fix up a house yourself, a fixer-upper may not be for you right now. 

Rental Property Tip #2: Keep Cash Flow Positive

Cash flow is king in real estate investing. Your goal is to provide an income for yourself, and it doesn’t make sense for you to hope that positive cashflow comes in the future. 

Make sure the numbers make sense from the very beginning. If you’re able to get a great deal on the house and a low down payment will still let you have positive cash flow, great. If the deal isn’t superb, consider investing some cash to get your monthly payment lower.

The 1% rule helps here, as you can usually have positive cash flow if the monthly rent equals at least 1% of the purchase price. 

Investment Property Tip #3: Start with Single Family Homes

It can be tempting to invest in a condo or townhouse as your first rental property. While there are advantages to this, we recommend sticking with detached single family homes. 

In general these homes are the simplest kind to buy. Condos or townhouses often come attached with hefty community or HOA fees and rules. You also have to pray the neighboring units have good tenants! Otherwise it may be hard for you to keep tenants in your property. 

Rental Property Tip #4: Hire a Property Management Company

Property managers aren’t cheap… but a good one is worth their weight in gold. Here are a few of the not-so-fun tasks they take off your plate:

  • Find tenants
  • Fill out paperwork with tenants
  • Collect rent
  • Respond to tenant requests
  • Work with contractors for repairs

In other words, they take care of the property so you can focus on other things – like finding new properties to invest in. 

Investment Property Tip #5: Buy Near Apartment Buildings

This one may sound weird, but think about it like this. People moving out of apartments are often trying to upsize their lifestyle by getting into a house. By having a property close by, you’re setting yourself up to get the attention of these renters. 

Need some help buying your rental property? Call us at (949) 651-6300 and we’ll help you any way that we can.