How to buy RENTAL PROPERTY detailed

3 Replies

Just purchased my home a modest ranch style, my question is , how do I go about buying a rental property I have 5k to invest into the purchase with a credit score of @ 668 I have no experience so detailed instructions would really help. I have been reading and researching different materials but I am a hands on person so the better the details the better chance of success, hopefully!

Hey Reuben,

The answer is way too involved to provide in a forum post.  You path is going to be unique to your area, your interests and your own finances.  There is a ton of information on this site; literally centuries of accumulated experience and there's no hope of even trying to summarize that here.  Instead, we can point you toward how to learn and you can see what works best for you.  Here's how I'd recommend you start:

  • Listen to the podcasts: There are a lot of experienced RE investors explaining their own experiences and business strategies in the podcasts. Listen to them and you'll begin to see that there are many different ways to invest in RE. Flipping, buy and hold SFH, multi-family, wholesaling, etc. Most everyone starts somewhere and then shifts as the business climate changes in their area or other opportunities present themselves. Sometimes people just find they like one area of the business more than others. That's all cool. Do what you like!
  • Learn the terms: I think one of the best ways to learn the terms is to subscribe to one of the areas of these forums.  You'll get emails when people (like you) ask questions and you'll learn a lot when others answer them.  When you don't understand a term or concept, search for it.  You'll learn a lot!
  • Find some properties and model them:  BP has a Rental tool that is really pretty good.  Look for some properties in your area, analyze the markets and know what sort of rents you can get and for which kinds of houses and in what areas.  Find out how much taxes and insurance will cost.  Develop estimates for Capital and Operational expenses. Find out what lawn maintenance will cost you.  You've just bought a house, so you know something of the financing charges, but you'll need to see what rates are for rental properties.  Talk to lenders and see what rates you can get  Plug all of this into the calculator and look at the output.  If you don't understand a term, look for it here.  You'll learn a lot through this exercise.  You'll also learn how to model properties and what kind of returns you can expect.
  • Save your money: It's going to be tough to start with $5K.  Not impossible, but really, really difficult.  Expect to go for D and C class properties (those are terms you need to know) and to do a lot of work yourself.  My advice would be to save more before purchasing a rental.  This will likely emerge as you do some modeling and you'll see that $5K simply isn't enough.  Tip:  When you model your properties, remember to include percentages for capital and operational expenses.  I'd also put 3% aside when you purchase a property to fund those capital expenses when they pop up.  And they will.  Depending on your margins, a new AC may wipe out your profits for a year.  Setting aside some money up front and also each month will smooth these expenses out.  

Everybody started in this business with the same questions you had.  When many of us started, there wasn't a resource like BP and we had to learn the hard way.  Dive in and have fun!  

Good luck!

@REUBEN JAMES II the first thing you need is more cash. $5k will not be enough for a down payment, let alone a reserve buffer to cover unexpected costs. Now, this doesnt, necessarily, have to be YOUR money, but you should figure that you'll need 20% of the purchase price for a down payment, plus closing costs, and at least 6 months worth of mortgage payments in reserves.
@REUBEN JAMES II I'll caveat this by saying I haven't invested in any real estate myself yet. I'm just now starting to create my "road map" if you will. I wouldn't say $5k is too little to start because it highly depends on your market. You kind of sound like me where you learn better hands on and doing rather than just reading and listening. If that's the case Google and check Meetup to see if there are any REIA meetings or real estate investor meetings in your area you could join and if your handy with fixing things or have something else to offer try and make friends with some of the investors doing what you want to do and offer free labor in exchange to pick thier brain. I believe the utlimate beginners guide (someone help me with the link) has some advice on how to get a "mentor". That's what I think I'd do in your shoes.