Investing in Rentals for Beginners
So, you’re a brand-new real estate investor. As you start this exciting real estate investment journey, Marketplace Homes is thrilled to be your reading companion.
As you learn how to generate cash flow and navigate the nuances of rental property investing, you will read many articles and books about best practices. Logistics like where to get funds, what properties to look for, the best investment strategies, and how to manage rentals are just some of the things you will learn and master with enough experience.
If all this feels daunting, don’t worry. Every seasoned real estate investor has once been a novice, knowing nothing about the business. From your first rental property to your twentieth, there is always something to learn too.
Marketplace Homes assists investors of all levels — from the investor with one or two rentals to the massive institutional investor that can buy lots of properties at once. We have helped them buy properties, find renters, and much more — and we can help you too.
Investing in Rental Properties for beginners
This guide will specifically discuss buy and hold investments, or making money through rental properties. Depending on your financial profile, desired real estate market, level of expertise, and other characteristics, your path to becoming an investor may be a quick launch or a slow buildup.
Many successful investors started out small, so rest assured that you will maximize your chance of succeeding with the right drive, access to solutions, and best practices. Here are the basic steps to becoming an investor.
Get Money
Basics come first. You need money to invest. New investors often need financing to get their first rental property, meaning they must offer a down payment and find a way to profit while paying mortgage payments. It’s challenging, but it can be done when you pick rentals with the right property value and generate enough rental income to grow your margin. Here are some of the ways investors can get enough money to buy a rental:
- Conventional Loan
- Private money loan
- HELOC Home equity line of credit
- Cash-out refinance
- Personal savings
Starting out with a lot of money is easier than starting out with little savings. The more assets you have, the easier it is to qualify for a loan. Though an all-cash offer is best because you won’t have a mortgage and only pay minor upkeep costs like property taxes, a conventional loan is the way many investors even became investors at all.
If you need a loan, it’s imperative that you work with a lender and real estate agent. Agents can advise you about the best properties for your financial needs, while a lender can give you the best advice about strengthening your financial profile and selecting a purchase price you can handle.
Find a Real Estate Agent You Trust and Like
As an investor, you’re going to spend a lot of time with your agent. Therefore, make sure this is a person that you get along with and trust. This pro will be critical to your success because they will help you navigate the real estate market. Here are some other positive characteristics to look for:
- Good connections: Realtors who know other investors can benefit you when you need to sell a property or find a new one. It saves you a lot of time finding buyers and sellers!
- Local expertise: A realtor with good knowledge of the market you want to work in will find you properties in areas you might not notice on your own.
- Savvy negotiations: An experienced realtor can negotiate the best deal and be your ultimate advocate.
- Hidden gems: Local experts can find properties that are withdrawn, off-market, temp-off, foreclosures, and more.
Find a Lender Who Puts You First
If you need financing, you should work with a realtor and lender simultaneously. Your lender will advise you on how to qualify for the best loan products. This may involve improving aspects of your finances for better rates:
- Debt-to-income-ratio (DTI)
- Credit score rehab
- Pay down points for smaller monthly payments.
To double down on efficiency, you may also work with a financial advisor. This becomes more important as you grow your portfolio, and you need to make a plan for taxes, future investments, and more.
Decide What Kind of Rentals You Want
There are many types of rental properties that investors can specialize in. At Marketplace Homes, we predominantly help investors of single-family home rentals. However, you may become an expert in another rental property type, like apartment buildings, multi-family units, or commercial real estate rentals. As long as it’s a good investment that will bring in enough monthly rent for your goals, then it can be beneficial for your personal finance goals.
Find Properties That Are Worth It
While you can turn practically any property into a rental, not every unit will make you money. To profit, you must find properties that provide a monthly income larger than their monthly expenses.
Need a simple rule to start? Follow the 1% rule. This is a tried and true figure that experienced real estate investors stand by. The 1% rule dictates that an investment’s monthly rent should equal or be no less than 1% of its purchase price. How do you ensure a property can pass the 1% rule? Multiply the cost of the home after repairs and multiply it by 0.01. For example, $150,000 x 0.01 = $1,500, the minimum you should charge for monthly rent.
Where do you find the deals?
Ok. Now you’re wondering how you can turn a property that you find on the open market into one that a regular renter can afford. The trick is to find discounted homes. Deals are everywhere if you look hard enough, and it’s easier with a realtor helping you. Here are some common sources of cheap homes.
- Foreclosures
- Auctions
- Distressed Properties
- For sale by owner houses
- Houses from wholesalers
How to make sure your rental profits
Even when you bought low and set a good rental price, you still need to play your cards right to profit. For example, vacancy or property damage can hamper your profit potential. Thankfully, you can do some “damage control” to protect yourself.
- Set a realistic holding time.
- Get human-powered tenant screening.
- Hire a reputable property management company.
- Do the repairs that matter. Don’t go overboard.
- Know when to cash in and when to lean in.
Investing in Rental Properties for Beginners
If you are a new investor and want some guidance or an awesome real estate agent who can find you properties and make connections with others in the industry, look no further than Marketplace Homes.