Investing in real estate can be a lucrative and rewarding endeavor, but there are many things to consider before taking the plunge. One of the best ways to begin your real estate investment journey is by purchasing your first rental property. This is a big decision and requires careful research and planning. Read our guide to buying your first rental property to avoid common mistakes and maximize your return on investment.
Tips For First Time Rental Property Owners
Do Your Research
Before making any decisions, it is important to do your research on the rental market in the area where you’d like to purchase a property. Look into vacancy rates, average rent prices, demographics of prospective tenants, and other factors that could affect your bottom line. Once you have a good understanding of the local market, you can begin researching properties that would be good candidates for investment.
You will also need to have a solid idea of what type of property you would like to buy, and what resources you will need in order to maintain it. Will you be looking for a single family home, or a multi-tenant structure? Do you plan on managing the property yourself, or will you hire a third party to do this?
Get Pre-Approved for Financing
The next step is to get pre-approved for financing so you know how much money you have available to invest in a property. This also makes it easier when it comes time to negotiate with sellers since they will know that you are serious about purchasing their rental property and have the necessary capital needed to complete the transaction. It’s also wise to look into tax benefits associated with owning income-producing real estate as these can help reduce costs for owners in many cases.
Choose the Right Loan
Selecting the right type of financing is also critical when it comes to buying your first rental property. You will have a variety of options, from conventional loans, government-backed loans, cash out refinancing, and hard money loans. The type of loan you qualify for will depend on various factors, including your down payment, credit history, debt-to-income ratio, and whether or not you plan on living in the property you are buying. Speaking with a qualified real estate finance company is a great way to start researching various loan programs.
Calculate Expenses & Set Goals
Once you’ve identified potential properties, take time to calculate all expected expenses associated with owning and managing a rental property—from monthly mortgage payments, taxes, insurance costs, repairs, etc.—so you understand exactly what kind of return on investment (ROI) you can expect from each option. Setting realistic goals will help ensure that investing in rental properties is beneficial for both long-term wealth building and cash flow purposes.
You will also need reserves for unexpected expenses, such as plumbing issues or appliance breakdowns.
Get Ready to Be a Landlord (Or Pay Extra for Help)
Being a landlord can be a big responsibility, especially if you manage a larger property. Something will always need fixing or addressing, which can be difficult for landlords living off the property. For reasons of convenience, many rental property owners choose to hire a third party manager to handle onsite issues. This is an additional expense, of course (usually 7-8 percent of the rent received).
Rental Property Loans in Colorado
Buying your first rental property can be an exciting yet daunting undertaking—but by doing thorough research and planning ahead of time, investors should be able to make informed decisions that provide long-term financial benefits and stability. Pine Tree Financial Partners has been helping real estate investors in Colorado achieve their dreams for nearly four decades. We finance all sorts of rental properties, and will work with you to find the right loan for your needs. Call or go online today to get started.