Buying a rental property can be a huge addition to your financial portfolio and can set you up to earn extra passive income. In the long run, this can be a big financial advantage. But how do you get started, if you have never bought a rental property before? Michael Andrew Lauchlan is a real estate investor with years of experience in rental properties. Now, he’s sharing some crucial tips and things you need to know before buying your first rental property.
Michael, why would someone be interested in buying a rental property for the first time?
The unfortunate truth of the matter is that slaving away at a 9-5 job can only get you so far. Most of us are earning far too little for our hours spent at work. Even higher earners aren’t able to save the kind of money they deserve to have on hand. Investing in general is one of the best ways to ensure your financial security and prosperity, and after my own experiences in real estate investing, I’m convinced this is the way to go.
Why rental properties in particular?
They’re a great investment for the long term, and depending on the choices you make, you’re able to minimize your risk. If you’re able to make your property have a positive cash flow early on, you’ll be setting yourself up for success, and there’s room for exponential growth.
What are three things you need to know before buying your first rental property?
Firstly, you need to take a hard look at your finances, and figure out what you’re prepared to spend, and how much risk you can handle. It’s my general rule of thumb that you have to try your best to be prepared for the worst-case scenario. Next, when you’re picking a property, look at the kind of work that needs to be done. Homes in foreclosure may be a great bargain, but does it need minor cosmetic repairs, or major mechanical work? Make sure you pick properties where you can handle the work that needs to be done. Lastly, aside from inspecting the property itself, take time to do some background research. Get an idea of what the neighborhood is like, how rental listings are priced, and if there are a lot of vacant units. You can also do research into what the neighborhood is like, how the school system is, and what the job market is like. All of these things will help you decide if the rental property will be a wise investment.
What are some of your goals as a rental property investor?
Having easy tenants who stay with you for the long term are the best. They mean that you’re bringing in passive income with ease. Especially if your property is in great shape and requires minimal upkeep. Just with most things in life, a little bit goes a long way in building a healthy, lasting relationship with your renters. Here are 5 ways to keep great tenants long term.
Any other advice?
Having a financial cushion is often the trickiest part for most first-time investors, but it can be a saving grace. Really try to have a cushion before you jump in with both feet, in case your investment isn’t immediately profitable, or you have a few bad months. And as with any investment, rental property investing comes with risk, but it can also be very much worth your while.