Buying Real Estate Investment Property

Buying Real Estate Investment Property

Buying Real Estate Investment Property is adaptable to your goals and pool of resources. The benefits of owning rental properties are as vast as your goals and desires. Don’t let analysis paralysis or fear of failure stop you from getting started!

How to Start Investing in Single Family Homes

The key is to buying real estate investment property is to have a model that works. Then use that model to guide your plan. A great plan allows you to get to your goal with minimal mistakes. Here are ten things to evaluate before you buy your first income property:

1. Type of Property – Focusing on single family homes, you can get started with a personal property or rental property. The first means you live in it first then rent it out when you move. The latter meaning it is a rental property from day one.
2. Local or Long Distance – Being a local investor allows you to be able to check on your properties easily if there is ever an emergency. It also makes it easier to self-manage or supervise a property manager. Long Distance allows you to invest where the market makes the most sense for cashflow.
3. Appreciating Market or Cash Flow Only – Some markets see large amounts of appreciation that a landlord can anticipate. However, other areas are cheaper and return large cash returns but the house will never go up in value. When you sell the house, it will be worth the same amount you paid for it. Learn more about investing for appreciation vs cash flow here.
4. Self Management or Property Management – Self-managing rental properties can save you 10% of each month’s rent. On the other hand, you have to take the time to handle the day to day management  such as changing over tenants, repairs/maintenance, etc. By hiring a property management team, you pass off most of the responsibilities of a landlord. You do need to be able to trust their judgement on how they handle tenant matters though. They are going to be your day to day person on the front who represents not only you, but also your money.
5. Property Demographic – The key when buying rental property is to make sure your demographics line up. Your house, demographics and price point all need to match up.
6. Cash or Financing – Under today’s market, you can put 20% down on rentals when you own less than 4 and 25% down when you own more than 4. Paying cash is great because you are debt free. However, financing rentals allows you to buy a bigger property or more of them as your financing dollar goes further. Leverage can be an asset or liability. Leveraging your property means that you can buy more property with less capital, but also means you have more risk.
7. Location (schools, neighborhoods, house size) – The key to a great successful rental is one that rents quickly in a great area and attracts tenants that pay their rent on time. Here are a few characteristics that help narrow down these types of properties:
   1. Great Schools
   2. Great Neighborhoods
   3. Smaller/Cheaper Houses
   4. Not Overly Updated
   5. Culdesac/Quiet Street/Fenced in Backyard
8. Budgeting for Maintenance – Always verify your numbers and always be prepared. A home may go two years with no repair expenses and then you may need to spend $5-10,000 on remodels or repairs within 4 months. AC units typically don’t last more than 7 years so are a good thing to budget for.
9. Buy a House that is Rental Flow Positive from Day One – They key to buying real estate investment property is to find successful rentals. This means that it has cash flowed from the day it entered service. In order to do this, you must buy a house where the mortgage and HOA expenses are less than their rental income.
10. Exit Plan – Always know your exit plan! Whether you are planning on keeping the house for 20 years or just until just until the next boom, always know your plan and goal for your homes.

Final Thoughts 

Buying real estate investment property or any kind of real estate can be unpredictable. The key to success though, is to have a plan and stick with it. Constantly evaluate and adapt while never forgetting your mission or purpose for being in the business.