Buying a rental property and getting into the business of real estate investing and building passive income isn't something to be taken lightly. Great profits OR financial disaster and regret are both viable outcomes from owning rental properties. When buying the first rental property, it is easy for one to get overwhelmed, scared, and down-right discouraged. Below are five tips that can help relieve some of the anxiety of entering the rental property game and insure that one is prepared for the endeavor they are about to begin.
1.) Research the Real Estate Business - This doesn t mean going to community college and getting a broker's license or becoming a real estate agent and selling properties. Leave that to the people that want to make a career out of handling other people's real estate. Researching the real estate business means being prepared in the areas of financing, real estate law, and evaluating a property's worth. Extensive knowledge of those three basics will easily prepare one for real estate investing. The below three books are magnificent places to learn the above three principles.
a.) This book teaches one how to evaluate a property s worth - The Weekend Millionaire s Secrets to Investing in Real Estate by Mike Summey and Roger Dawson.
b.) This book teaches one how to finance a property - Mortgages for Dummies by Eric Tyson and Ray Brown.
c.) This book teaches one about Landlord/Tenant Law by State - Ohio Landlord Tenant Law. Substitute Ohio for one s own state. The Thomson West Company publishes these.
2.) Find a Healthy Market - Owning rental properties can be very profitable, but one factor that will kill a property's profitability is constant vacancies. When buying the first rental, one needs to ensure that the real estate market is a healthy one. Signs of a healthy market are new homes being built, plenty of jobs, and nice kept lawns and nice exteriors of the homes in the neighborhood. If there are plenty of well-paying jobs in the area than one can be sure that they will have no problem renting their properties.
3.) Get the property at a Good Price - This sounds like basic knowledge and it is. Make sure to get the property for a good price. Overpaying on a property can instantly make the property unprofitable. If one reads the book mentioned in the a.) tip above, this will not be a problem; guaranteed. When purchasing a property, it is not the price alone, but rather the price that the buyer can buy the property at and still make money that matters. A net income sheet for is a great tool for evaluating a property s worth to the individual buyer.
4.)Find a Money Tree - If one has plenty of money, this is easy. They can go to their local bank, put 20% down and get on with their lives. But if one doesn't have an entire down payment of 20% setting around, then they need to find and develop a relationship with a lender. The easiest way to do this isn't searching the internet for lenders; rather it is by speaking with real estate agents. They deal with many real estate investors and often have great relationships with mortgage brokers; the people who can find a lender that doesn't require anywhere close to 20% down on a loan. Interest rates will be higher, but one can get into real estate with little up front money if they find a good mortgage broker.
5.)Overcoming Fear - This tip is the simplest to explain, but hardest to do. Everyone that has entered the rental property market was most likely scared when they began; afraid that their properties wouldn't make money, afraid of dealing with bad tenants, afraid of the headaches of managing properties, and so on. These are all legitimate fears, but ones that can easily be overcome by preparing one's self and buying their first property. As with a new career, once the person gets their first property, they begin to gain experience and realize that it isn't that hard at all.
Entering the rental property business as an investor is a great way to build passive income, prepare for retirement, and get many benefits, such as, tax breaks, an immaculate credit rating, respect within the community, and priceless business experience.