Best advice for first rental property

[Lamar Athill]

I am new to real estate and Im looking acquire some rental properties. What would be good advice on how to get started

[Matthew Crivelli]

@Lamar Athill

Be careful inheriting tenants in CT. If they decide not to pay you, it could end up being a nightmare trying to get them out. Also, get a home inspection and have a home inspection contingency in your contract. 

[Lamar Athill]

Thank you for that advice Matthew! 

[Jacopo Iasiello]

Hi Lamar,  Acquiring rental properties can be a rewarding venture, but it's important to approach it with careful planning and consideration. Here some of my advice first Educate yourself 
Understand the local rental market trends, property values, and rental demand. Second Set Clear Goals Are you looking for long-term wealth accumulation, steady income, or both? Setting clear goals will guide your investment strategy. Third Financial Preparation Evaluate your budget, savings, and credit score. Consider seeking pre-approval for financing to know your purchasing power. Fourth Start Small Select properties that align with your budget and investment goals and also consider Location Matters, Due Diligence, Build a Reliable Team, review Risk and Reward and continuous learning the most important. I hope it helps! :)

[Dan M.]

Get some real estate related books and take it with a grain of salt that some of the books are out of date to an extent.

You have to learn how to analyze a property, without being really good at it, or at least moderately good at it, you'll never know if a property is worth buying. I recommend doing at least 5 per day. 

[Jeff Roth]

HI Lamar-

Great question!

I would find an investor friendly Realtor locally that is also an investor themselves or local to the area you want to invest.

They will have experience and connections to help you find and evaluate investment properties.

I would ask the investor friendly Realtor for a property manager referral as the property manager will be an important member of your investing team. They should be involved in the selection of the investment property and giving input on how to maximize the return on investment.

Finally, I would recommend you consider starting with at least a duplex if you can, so you hopefully always have a rent check coming in during a vacancy.

To your success!

[G. Brian Davis]

Hi @Lamar Athill, glad to hear you're getting into real estate investing!

I started my career with rentals. One thing I wish I'd known before buying any properties was how to accurately calculate cash flow. It's not "the rent minus the mortgage." In fact, the rule of thumb in the industry is called the 50% Rule: that 50% of the rent will go toward non-mortgage expenses (vacancy rate, repairs, maintenance, insurance, property taxes, management, accounting, etc.).

I also didn't realize how many different skills were required, from financing to managing contractors to permits to city inspections to managing tenants or property managers. And many others.

Personally, I no longer invest in rental properties. I found it too much work and not enough return. Nowadays I invest relatively small amounts in real estate syndications (passive group investments). I recently wrote about this for BiggerPockets: https://www.biggerpockets.com/blog/dollar-cost-average-real-....

Feel free to hit me up with a message any time!

Brian

[Samuel Eddinger]

My advice to any first time investor is to only buy a property you are willing to hold long term.  In those cases, if the market goes down, you are willing to hold long enough for the market to rebound.

My second piece of advice is to only buy properties that you would live in yourself.  If you would not live in the property, it is hard to get good tenants that would so your vacancy and bad debt will be higher than expected (costing you money).

I'd be happy to have a phone call with you.  DM me if interested.

[Gregory Schwartz]

Get around other local investors in your market. BP is a great resource to get questions answered and to meet people. However, nothing tops in-person connection. Go to local meet-ups, meet people for coffee, and take them to lunch. 

Set expectations upfront, this is not easy but it is 100% worth it. 

[Michael Smythe]

@Lamar Athill

Recommend you first figure out the property Class you want to invest in, THEN figure out the corresponding location to invest in.

If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.

So, when investing in areas they don’t really know, investors should research the different property Class submarkets.

Here’s our OPINION for the Metro Detroit market (use as a template for your target area!) that we’ve learned in our 24 years, managing almost 700 doors across the Metro Detroit area, including almost 100 S8 leases.:

Class A Properties:
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% the more recent norm.
Tenant Pool: Majority will have FICO scores of 680+, zero evictions in last 7 years.

Class B Properties:
Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
Tenant Pool: Majority will have FICO scores of 620-680, some blemishes, but should have no evictions in last 5 years

Class C Properties:
Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
Vacancy Est: Historically 10%, but 15-20% should be used to also cover tenant nonpayment, eviction costs & damages.
Tenant Pool: majority will have FICO scores of 560-620, many blemishes, but should have no evictions in last 2 years. Verifying last 2 years of rental history very important! Also, focus on 2 years of job/income stability.

Class D Properties:
Cashflow vs Appreciation: Typically, all cashflow with zero or negative relative rent & value appreciation
Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
Tenant Pool: majority will have FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, recent evictions. Verifying last 2 years of rental history and income extremely important to find the “best of the worst”.

Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

What else can we assist you with?

[Nicholas L.]

@Lamar Athill

it's house hacking

it's that simple

it's not easy, but it's simple

house hack

[Corey Conklin]

Why do you want to get into rental properties?

Is it because you saw that someone got rich being a real estate investor? you want "financial freedom"? Create "generational" wealth? Or you saw that someone got rich overnight investing in real estate?

If you are doing it for those reasons then you are going to have a rude awakening. 

If you don't have any skill sets that translate to being a real estate investor and you plan to "build a team" to do it all for you then you are also in for a rude awakening. 

The reality of real estate investing is that it take A LOT of work. If you don't understand that going in to it, you will fail.

Now that I'm off of my soap box. The best way to get into real estate with little money is house hacking which I believe someone already said. If you have money then go buy a rental property, advertise it to rent and go from there. You'll learn as you go, just jump in and start taking action.

[River Sava]

Hi Lamar - 

Best place to start is by educating yourself and networking. Books, online resources, and local investment groups, etc. Clarify your investment goals to guide your property choices. Analyze local market trends, rental demand, and economic indicators to pinpoint growth potential, and reach out to local investors / RE professionals in your area.

[Wale Lawal]

@Lamar Athill

Real estate investment may be intimidating as well as exhilarating when you first start out. Define your investment goals, familiarize yourself with related terms, evaluate your financial situation, begin small, investigate markets, establish investment standards, cultivate professional connections, carry out exhaustive due diligence, investigate funding alternatives, and determine whether to manage the property on your own or by hiring a property management company.

Decide what you want to achieve—stable cash flow, long-term growth, tax advantages, or all of these—and dedicate some time to learning about them by reading books, using the internet, taking classes, and attending seminars. Examine your financial situation, taking into account your credit limit, savings, and accessible funding. To begin with and develop confidence, start small by beginning with a single rental property or a modest multi-unit property.

To choose the ideal property kinds for your investment goals and risk tolerance, do in-depth market research to uncover attractive investment markets and examine local market trends. To get helpful advice and support, connect with lenders, contractors, property managers, investors, real estate agents, and other experts.

Options for financing include private loans, partnerships, FHA, VA, and conventional mortgages. After weighing the advantages and disadvantages of each choice, select the best one for your needs.

Never forget that real estate investment is a long-term endeavor that calls for tolerance, tenacity, and ongoing education. To create an effective and lucrative rental property portfolio, start with a strong foundation, maintain discipline, and adjust to shifting market conditions.

Good luck!

[Crystal Smith]

Quote from @Lamar Athill:

I am new to real estate and Im looking acquire some rental properties. What would be good advice on how to get started

 How to get started:

1. Get your financing in place

2. Hire a realtor

3. Get on every wholesaler list possible 

4. Start networking with other investors

5. Start developing a list of property management companies, General Contractors, handymen

6. This is probably the most important- Make sure you understand the financials associated with rentals

7. Start getting recommendations for real estate attorneys

8. Consider establishing an LLC for your real estate- On my first property I had a loan from a bank but I had established a Property management LLC to manage the property. While I lived in the property my tenants did not know I was the owner. All payments went to the LLC.

I probably forgot something.

By the way I saw a few negative comments in the thread about why you should not do this.  Ignore them.

[Billy Smith]

Current real-estate prices are making SFH so expensive is not worth it after getting mortgage .If paying cash do the math find out what your return on your money is .