What You Need To Know About Purchasing Your First Real Estate Rental Property

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If you’re somebody who’s already doing flips, you may already be doing rentals also. 

Whether you’re a beginner or have already started, Home Flipping Workshop can make you a better real estate investor. 

It’s essential to learn the basic systems to scale your business. We are looking for a handful of people to mentor in building the life of their dreams. 

About 93 percent of the wealthiest people in the world have made their money in real estate. 

Our strategy is the best way for ordinary people to build wealth quickly.

Many people ask, is it a good time to start investing in real estate? Historically speaking, it’s the absolute best time. 

According to most real estate investing experts, this will be one of the most significant shifts in wealth our country has ever seen. 

Much of America’s wealth is about to shift in the coming market. 

PREPARING TO SUCCEED AS A LANDLORD

Historically, real estate has already produced many of the world’s wealthiest people. As a result, it’s a proven path to financial freedom for people who gain an understanding of the industry. 

Experts agree, and real estate overall is a solid investment.

However, every entrepreneur doesn’t experience the same magnitude of success, and this is a reason. 

Before diving into the business, even if you have an overview of real estate investing, the proper training helps. 

You will become well-versed and avoid unwanted losses after taking our real estate investing course at the Home Flipping Workshop. 

Among many other variables, you should start by considering the following:

  • Real estate investing is not all gains, glamor, and glory; it comes with challenges.
  • Rental property mortgages typically require a 20% down payment.
  • There are skills needed to be a landlord, such as maintenance responsibilities and understanding tenant law.
  • When renting properties with existing mortgages, a financial cushion helps prevent financial burdens when a home is unrented.

    • COUNTING THE COST OF YOUR FIRST REAL ESTATE INVESTMENT

    Now that you know which real estate investing lane you want to be in, you’ll need to map out an investment portfolio strategy. 

    Consider your existing debt and count the cost before getting started. Some dept you might want to eradicate before purchasing your first include:

  • Student loans
  • Unpaid medical bills
  • College-age kids
  • Hospital bills

    • Being financially cautious is critical. Calculate if your real estate investment return will be greater than the cost of debt. 

    Always maintain a cash cushion – be sure to operate in a margin of safety.

    One thing that will help you maintain your cushion is securing homes with a 20-percent or more down payment. 

    Investment properties typically require larger down payments than owner-occupied properties. The approval process is also complex. 

    The general expectations for approval of rental property mortgages include the following four criteria:

    1. Credit Score: There's a minimum score of 620, but with a score of 740 or higher, borrowers get better terms and lower interest rates.
    2. Down Payment: Rental property mortgages generally require 15-20 percent down payments.
    3. Debt-to-Income Ratio (DTI): When your monthly income and debt are evaluated, a 36-45 percent DTI range is necessary to qualify as a borrower aiming to qualify for rental property mortgages.
    4. Savings: Rental property borrowers must have enough money in the bank to cover 3-6 months of mortgage payments, including principal, interest, taxes, and insurance.

    ARE CASH PURCHASES OR FINANCING BEST?

    Whether you take a large lump sum of cash or secure financing is optional and depends solely on your investment strategy and goals. 

    Cash purchases can help generate more monthly cash flow, but financing generates higher returns on smaller amounts invested. 

    Suppose a rental property costs $100,000 to buy. The cash buyer could see $9,500 in annual earnings with rental income, taxes, and income tax.

    On the other hand, financing can get you a greater return. 

    For example, if that same investor puts down 20% on a $100,000 house, compounding at 4% on the mortgage. After operating expenses and additional interest, the earnings add roughly $5,580 per year. 

    The cash flow is lower for the second investor.

    However, a 27.9% annual return on the $20,000 investment is much higher than the 9.5% earned by the cash buyer.

    What Type of Houses Work Best For Rentals?

    The more expensive the home, the greater your ongoing expenses will be. Some experts recommend starting with a $150,000 to $200,000 home in an up-and-coming neighborhood. Avoid buying the best house on the block, but don’t buy the worst one either. 

    These are fundamental reasons real estate investors must count the cost before purchasing their first property. 

    THE RIGHT LOCATION MATTERS

    Buying the wrong rental house in a bad neighborhood can prove disastrous. There are several important characteristics to consider when picking a profitable rental property. 

  • Low property taxes
  • Decent school district
  • Plenty of amenities,
  • Nearby restaurants and coffee shops,
  • Local shopping,
  • Neighborhood trails and parks.
  • Low crime rates
  • Easy access to public transportation,
  • Growing job market

    • WHAT EVERY LANDLORD MUST CONSIDER

    Making passive income as a landlord is a great way to get started experiencing financial freedom. 

    However, getting started isn’t all glitz and glamor. 

    Most importantly, you must know how to choose the right property, prep the home, identify reliable tenants, and prepare to handle maintenance hassles. 

    Some landlords do better when hiring property managers, while others cope with making repairs on their own without headaches.

    A professional property manager will do the following:

  • Understand demographic strategies to market the property
  • Gauge the local rental market and ensure you price the rental accordingly
  • Show the property to potential tenants
  • Screen tenants with credit checks and background references
  • Collect rent
  • Handle late fees and eviction processes
  • Negotiate tenant complaints
  • Take responsibility for maintenance and repair work
  • Manage property taxes, utilities, insurance, and other related bills

    • Building A Team Helps with Legal Obligations

    You will need to have someone on your team familiar with landlord-tenant laws. These laws change state-to-state regarding security deposits, lease requirements, eviction rules, fair housing, etc. Whether you hire one or build your own, a property management team helps avoid a host of legal hassles. 

    If you hire a property management team, the cost is typically less than 15% of the collected rents. Hiring a management team will lessen your profit if it is not anticipated and calculated into the rent at the beginning of the lease. 

    However, building a team will eliminate headaches, disappointments, and financial losses. 

    As your business grows and you acquire new rental homes, additional repairs and other responsibilities will be required. As a result, building a team will enable you to scale your business and add more properties to your portfolio.

    Ultimately, being a landlord means you will need to be a handyman with spare time or a businessman with extra cash. 

    THE BOTTOM LINE TO INVESTING IN REAL ESTATE

    This article will help you maintain a realistic approach to your expectations. Purchasing one single-family rental home is not going to produce huge dividends. 

    However, if done correctly, rental properties can be a lucrative industry. 

    Register for the next Home Flipping Workshop or contact the team for more helpful information and support that will help you prevent catastrophic mistakes. 

    Glenn and Amber Schworm have been helping countless real estate entrepreneurs achieve unlimited success in living a life of financial freedom. 

    Contact us today. We’re waiting to hear from you.