How to Buy First Real Estate Property?
Most people are attracted to real estate investment as a form of accumulating long-term wealth. Purchasing a rental property is not only a source of monthly cash flow but also serves as a solid retirement plan. However, the key to success in real estate investments is purchasing the right property. Not all rental properties make good investments. You should invest in a property that strikes a perfect balance between demand and location for maximum returns.
If you’ve been thinking of making this investment, below are tips on how to buy your first real estate property.
1. Do Your Homework
Buying a property and converting it into rentals won’t assure success. Before spending money in the real estate market, you should have a detailed plan. Some important questions that can guide your investment include:
- Do you want a single, multifamily property or an apartment?
- What is the best location for your real estate investment?
- Do you have a budget for your purchase?
- Will you manage the rental property or hire property managers?
While investing in rental properties is certainly rewarding, you should learn the basics, set goals, and develop a plan to achieve them.
2. Choose the Right Location
Location is the second and most important tip that determines the success of your investment. You should buy a rental property close to desirable locations. This increases the value and demand for your units, allowing you to increase rental prices.
Property location is a key determinant of how the property will be used. For instance, if your property is close to tourist destinations like Minnetonka real estate, it can earn better if converted to vacation rentals. On the other hand, properties close to colleges are best for student housing.
3. Choose the Right Financing
Owning rental properties comes with commitments beyond finding tenants and collecting checks. Purchasing rental properties is expensive, and most people prefer financing their purchases. While paying back a real estate mortgage is not a challenge, thanks to monthly cash flows, you should choose a good financing partner.
Choosing lenders with high monthly payments means a reduction in monthly cash flows. Most loan programs require between 20 to 30% down payment for rental properties. Homeowner’s insurance for rental properties is also higher than those for primary residences. You should also account for miscellaneous fees, such as 8-10% charged by property managers and snow removal and landscaping fees.
Generally, you need a lot of cash to start making money from real estate investment. Cash flow may also meet your anticipated income during the first months. Therefore, consult your lender or mortgage provider about the available financing options. That aside, you should ensure you can qualify for financing before applying for a mortgage. Most lenders consider the following:
- A good credit score of at least 680
- Job history and tax returns for self-employed applicants
- Low debt-to-income ratio – at least 36% or less
- Cash on hand for the down payment
4. Know Your Legal Obligations
Landlords should adhere to various stringent legal obligations. Apart from tenant lease agreements, states have different laws that protect landlords and tenants. Therefore, you should be versed in the basic legal requirements of landlords. Nothing can derail your successful real estate property than ignoring the law.
Before buying a rental property, you should know what you are signing up for. For instance, a landlord-tenant lease agreement gives landlords five key responsibilities. Important duties include managing the security deposit, providing contact information for rental payment and maintenance issues, and disbursing keys to tenants.
5. Prepare to Be a Landlord
You should prepare to assume the role of a landlord immediately after you close the sale. To be an effective landlord, you should adopt the temperament of real estate investors. You should be self-disciplined, pay attention to detail, and enforce rules on rental agreements to the latter, even if it means evicting tenants.
Buying your first real estate investment is rewarding but comes with challenges. However, these real estate tips for first time home buyers can help you break into the real estate market effortlessly. If investing directly in real estate seems challenging, consider investing indirectly through REITs and crowdfunding websites. For more information, contact us right away!