What To Think About Before You Buy a Rental Property
TL;DR - Make sure you’re committed to real estate investing. Then, ask yourself these five questions before buying a property. By doing these two things, you’re setting yourself up for passive wealth.
Chances are, if you’re a first-time investor, you’re not quite sure what to consider before investing in a rental property.
Sure, you might’ve heard a tip here and there. But nothing’s really guiding you in the right direction.
If you’re a current investor, you might want to freshen up on what you should be looking for.
In order to help you out, we’ve put together a list of the top things to consider before investing your hard-earned money.
We’re going to cover some more well-known tips and some that can fly under the radar.
Without further ado — let’s get to it!
What to Think About Before You Buy a Rental Property
Be Committed
We’ve talked about this before in our beginner’s investing guide, but there’s one thing you should know about all else.
In order to really make money in the real estate game, you have to be committed.
Too many beginning investors think that real estate is easy passive money. And while it certainly can be, you have to put in the work to make that so.
There will be bumps in the road. You will fail. It will get tough. But if you can get past these initial hurdles? A lot of money’s waiting for you.
A lot.
The Top Questions To Ask Yourself Before Investing
It can be easy to pounce on the first “good” deal you see. After all, the real estate market’s hot right now. And it isn’t slowing down anytime soon.
But there are some questions you should ask yourself before you pull the trigger. If you do, you’ll save (and earn) a good bit of money.
Question 1: Is this property in good condition?
Nobody wants to deal with a massive amount of renovations. Unless they flip houses or are a masochist.
More repairs mean more money out of your pocket. And heck, monthly rental property expenses can be large enough on their own. You don’t need more issues to worry about.
Until you’re really experienced with real estate, it’s best to stick with properties that are well maintained. They’ll cost you less in repairs and you can rent them as-is.
Question 2: Can I get a 1% return on this home?
A good investing strategy is one that brings you a consistent return of profit. That’s why we prefer investing for cash flow over appreciation.
Most real estate investors will tell you that you got a good deal if you can get a 1% return on your property.
What does this mean?
Well if you buy a $100,000 property, you should be able to get $1,000 in rent per month. Likewise, if you buy a $500,000 property then you should expect to get $5,000 per month in rent.
If you know that property values are rising in the local area, it’s okay to break this rule. That means that you’ll be able to raise rent soon enough.
But for most investments, try to follow the 1% rule!
Question 3: Would I feel safe in my property’s area?
If the answer to this question is no, then you probably shouldn’t buy the rental.
Why?
Because location is a huge factor in how much profit you’ll earn from your rental property.
A home may look perfect inside and outside but if a tenant can’t enjoy it without stress, you won’t have many people wanting to rent from you.
You should drive or walk around the local area of your potential property (if you can) and scope it out. What’s the area like? How do you feel when you look around?
Unless you feel good about the area you’re buying in, it isn’t worth it.
If you wouldn’t live in your rental, why should anyone else?
Question 4: Do I want to manage my property?
Some investors want to manage their own property. Most don’t.
We fall in the second camp and that’s why we recommend that you let a property manager manage your property.
Not only will you save time, avoid hassles, and add a valuable member to your real estate team.
Hiring a property manager is a real estate tax deduction! So you’ll be thriving and you’ll get a nice tax write-off.
But if you still want to manage your own property, that’s fine! Just ask yourself if 10% of your monthly rent is worth passive income.
If it is, then hire a PM! If not, then you can totally manage your property alone.
Question 5: Have I saved up for an emergency fund?
One thing you should prepare for as a rental property owner is unexpected expenses.
They might never come up! But when they do, you’ll wish you were ready for them.
The best way to save up an emergency fund is not to pay more than your budget for your property. Set a number that you won’t go over and stick to it. This will allow you some wiggle room for unforeseen repairs or a rainy day.
After you own a piece of real estate, save 20 to 30% of your rental income for emergencies. That way, you won’t be caught by surprise by a random problem.
Trust us, you’ll be happy you did!
Happy Hunting
If you ask yourself all of these questions before you buy a rental property, you’re on your way to making a good investment.
Real estate can be a great way to build wealth and even passive income (if you hire a property manager). But you have to be committed and prepared to learn through the failures.
Just know that you can do it. We’ve got your back.
Happy hunting!
How We Can Help You
Does investing in real estate sound intriguing to you? Would you like to learn more? We’d love to be of value!
At Undoor, we pride ourselves on teaching new and experienced investors how to maximize their gains with minimal stress. Our goal is to help you fall in love with real estate and real estate investing. What we’re most passionate about is maximizing investment gains for people like you.
Do you want to get key insights and advice that’ll help you get ahead of the game? Don’t hesitate to contact us for any and all real estate wants or needs.
