The cash back from rental property ownership is so alluring. The concept is simple: Investors put their tenants’ money to work. Property owners use rent money to pay off the property mortgage – and earn a little extra besides. Successful real estate investors have the opportunity to trade in their 9-5 jobs making money for the boss. Instead, they grow their own nest egg. They gain financial freedom and more time to do the things they enjoy. That’s the power of real estate investment.
However, buying your first rental property in the Greater Washington D.C. area can be a daunting proposition. No worries! Once you learn the basic steps to buy your first investment property, you’ll be ready when the right deal comes along.
Tips To Purchase Your First Rental Property
Acquiring Your First Rental Property
To acquire your first rental property, you’ll need to do some research. Ask yourself, “Where should I buy property?” A rental property that’s within an hour’s drive is a good starting point. Once you decide on a location, it’s time to find what’s available for sale. Search websites like Zillow. Com or Realtor.com to look for properties and prices. If the local prices are beyond your range or there are no desirable properties for sale, choose a market that’s further away, even out of state. However, be aware that long-distance ownership requires a bit more attention.
Arranging Financing For A Rental Property
At this point, it’s time to arrange to finance. Start by talking with a lender at a local bank or credit union. Your local lender will determine what you qualify for and explain any programs available to you. A lender typically requires a payment of 20% down on a rental property. The down payment decreases if you qualify for a VA loan or USDA loan. Additionally, you’ll save on the down payment if you live in the rental unit for a year or more. Lastly, it’s smart to talk to multiple lenders in order to identify the best terms and conditions of a loan that’s right for you.
Many real estate investors prefer to buy distressed properties and renovate them to build instant equity. Your typical local lender most likely would not be equipped to finance such properties. Instead, you might need to use a private hard money lender. Such lenders specialize in working with real estate investors and financing the purchase and rehab of dilapidated homes in need of a major overhaul.
Evaluating The Potential Of A Rental Property
Once you are preapproved for a loan, the next step is to analyze properties. One key aspect to analyze is the rental property’s financial potential. You want to understand the monthly income a property produces, plus the monthly expenses. Start by asking the property manager or real estate agent associated with the property for the amount of monthly rent. Next, ask about the cost of insurance and utilities. Hint: You may need to call an insurance company and utility department for these numbers. Once you’ve gathered your numbers, determine if this is a sound investment.
Shopping For Your First Rental Property
Now, it’s time to start shopping for properties. For your first investment property, I recommend working with a real estate agent. Explain to the agent what kind of property you’re looking for and in what location. A real estate agent, especially one who has experience with rental property, can steer you in the right direction.
Closing The Deal
Your real estate agent can help you make an offer, negotiate on a price, and handle many of the legal and logistical details associated with closing on your first rental property.
You might not become a savvy investor overnight. However, your first real estate investment starts you down a path to financial freedom. Begin with these three steps, and you’re on your way:
- Arrange financing
- Evaluate the financial potential of a rental property
- Shop around