When should I start?

Question

When should you decide when to start the rental property process? I have read the book on rental property investing and am eager to start but know i need to increase my knowledge.

Austen Mueller · Answer

Hi there and welcome to BiggerPockets!

-First thing is first. You need direction. what type of stratygy are you looking to employ? Househack? BRRRR? Turnkey/light cosmetic work?

-I ask this becuase whitch stratygy you employ will affect How much money you need. Diffrent stratygies will require diffrent down deposits and lender requirments. DIffrence here is...

Househack=FHA loan=3.5% down. (Recommended for young new investors who havnt purchased their first home yet)

Conventional= 20% down

Hardmoney= will need large liquid cash reserve and someone to do the work quickly. (Added step for new investors compared to buying turnkey.)

- Once you have a direction. How do you know if your able to start. Talk to a mortgage lender. They will be able to look at your credit and debit to income ratio and tell you EXACTLY how much you can borrow. Now you know how much home you can afford. This is huge becuase now we know what markets we can afford or how many doors in that market. This will give you more direction and keep you from feeling overwhelmed and looking at properties in places that just dont make sense to you.

-This brings me to the next step. Pick a market. A lot of good ones out there. If your from New York maybe out of state investing in PA may be a viable option for you.

-Then you need to find an investor friendly agent in that market. They will be able to "plug you in" into a great market given your search criteria and be your "boots on the ground"

Hoped this helped!

Carlos Valencia · Answer

I would suggest to continue growing your knowledge and do your research on which market you want to begin investing. How you plan on financing, type of tenants you want, therefore make sure you research the city you plan on having a rental. Main thing is to run the numbers to make sure the deal will make financial sense. Best of luck with your journey.

@Albert Bui @Matthew Kwan

Eliott Elias · Answer

There is no better time than now, real estate allows you to test the waters at any time no matter your experience level. Books will not teach you what walking properties with investors will.

Mackaylee Beach · Answer

Hey Emily!

Taking the time to search for the right property in the right location is a great way to start. KC has lots of opportunities for cash flow with rental properties. Please let me know if you'd like more information regarding the Kansas City market.

Jeff Dawson · Answer

Just echoing what everyone else has already said. Do your homework and have everything ready to go when a deal presents itself so you don't hesitate and miss out. In the meantime keep educating yourself; this forum, podcasts, books, etc. Good luck!

Drew Sygit · Answer

@Emily Capozzi start by reading everything you can here on BP about rental properties. You can also connect with other investors in your area using the search feature.

John Morgan · Answer

@Emily Capozzi

Start today. Get on Zillow and hit the like button on houses that seem decent in a location you’re interested in. You’ll see how fast or slow they go pending. This will help educate you on good deals. Pretty soon you’ll be able to spot good deals off the MLS or off market deals from wholesalers or friends. I would start there. Then crunch numbers. It’s easy to see how much a house will make you. I put 20% down on all my properties. I calculate the mortgage payment (off Google “mortgage calculator”), insurance and property taxes all together. You can find out your profit on a property within 2 minutes. I like to get at least a 7 or 8% cash on cash return on my down payment, closing costs and rehab expenses (if I rehab it at all). It’s not rocket science to calculate this and it takes only 2 or 3 minutes per deal you’re looking at. Get comfortable doing this because when you’ll find deals when you’re not looking. At least that’s what always happens to me. Lol. Last week someone offered me his off market property for 60k under ARV. He just wanted to dump it after his tenants moved out. I wasn’t prepared or looking to buy another house. However, this is a deal I couldn’t pass up so I’m taking it. Be ready at all times because properties will fall in your lap when you’re not looking over time. Be ready to jump on it that second. Otherwise, someone else will snatch it from you. Been there done that.

My next advice is to walk properties. Get on wholesalers lists and go walk fixer uppers they list for fun. Act like you have cash and could close on those properties in 10 days even though you don’t. Lol. Call listing agents to walk properties off the MLS. I always use the listing agents to buy. Get familiar looking at homes. Look for old HVACs, roofs, water heaters, cast iron plumbing, bad foundations etc. The more you poke around and walk these houses, the better prepared and confident you’ll be when you’re ready to pull the trigger.

Get your financing ready. Get pre approvals from lenders. If you need downpayment money get creative. That’s what I’ve done. I’ve done HELOCs and a cash out refi on my primary to buy my first 5 properties. I even bought a house with a 401k loan. lol. I’ve paid for rehabs with no interest for a year credit cards and 401k loans. I only had 30k in the bank when I started and figured out a way to scale up to 18 buy n hold properties in 8 years with that cash. I recycle equity to scale up. So go out and plant that tree today and enjoy all the cash flow. Good luck!

Jeff Schemmel · Answer

@Emily Capozzi I bought my first house hack with $5,000 in.  I was broke when I bought it, and I got a bit of an unconventional property for househacking (SFH condo) but I was able to rent half to a friend and slash my cost of living by $750/m.  That's the goal.  Do what you need to do to get this part accomplished and learn from there.  When buying your first deal, worry less about finding the perfect deal and waiting for the "BEST" opportunity and worry more about reducing your cost of living as much as you can.  Don't be silly about where you buy, but don't wait a year or two to find a perfect deal and miss-out on the wealth building that househacking brings you.  If you've got enough of a down payment, speak with a lender who demonstrates a track-record with investment property lending (bonus points if they're also an investor), and then partner up with a realtor who also knows investment properties (best if they are also an investor).From there, just go see a few places and make it real for yourself.  Practice your deal analysis daily and develop a sense for what a deal looks like in areas you like and just be decisive.

Anthony Torri · Answer

Hi, Emily!

Education and personal financial situation is what you need to be ready. You know enough now to get started, DON'T lock yourself in analysis paralysis and keep delaying investing. Now, just assess your credit score, income, and savings.

I would recommend talking with a FHA approved lender about getting pre-approved for a FHA primary residence loan for a 2-4 unit house hack. You will need above a 580 credit score to put 3.5% down, if it's lower, then 10% down. Look at what 2-4 unit homes are selling for in your desired area and calculate what 3.5% is for that average sales price. The down payment and closing costs (usually about 1% of the purchase price) is what you want in cash as a bare minimum. You will also pay for a home inspection (about $500+) and an appraisal (about $700).

You can text or call me anytime from my cell listed below. I have house hacked multiple times in CT and I'm happy to share lessons learned.

Nicholas L. · Answer

@Emily Capozzi

OK - are you in a position to be able to house hack?  Or are you looking for a standard investment property that you would conventionally finance?

I'd recommend having cash for: personal savings + down payment + closing costs + reserves

YMMV

When should I start?

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