If you have a large sum of money saved for a down payment on an investment property and you’re comfortable fulfilling your many obligations as a landlord, you may be ready to begin the search for your first rental home, condo, or multi-unit property.
According to experts at BiggerPockets, investing in a condo, single-family home, or small multi-family property such as a quadplex or duplex is typically best for first-time real estate investors—as larger multifamily structures can be difficult to finance, manage, and sell later on. Multi-family properties have the potential to generate more cash each month, but the responsibilities of dealing with multiple tenants can be overwhelming for first-timers.
Before purchasing your first investment property, it’s important to explore all your different options—as this will help you select the right type of rental for you, and manage it in the best possible way. To explore the step-by-step process of buying, managing, and preparing your investment home for future tenants, read on!
1. Making It Legal
Now that you’re ready to launch your new rental property business, it’s time to register it as a legal business entity with the state in which you’ll be operating. Business needs vary, but the top considerations for selecting the entity type typically are: (1) the protection it offers you as the business owner; (2) flexibility in how you run your business; and (3) ease of the registration process. An LLC often provides the best options for all three considerations, and it can be completed in about five steps, depending on your state.
2. Find the Right Investment Property
When looking for a rental home to invest in, it’s vital that you work with a talented and experienced real estate agent from Preferred Realty who can help you to find the right type of income property for you. You’ll also need to consider your budget and what you can afford. As you search for the right type of rental home to invest in, however, it’s also important to look for properties in profitable neighborhoods that are likely to attract prospective tenants. Typically, profitable neighborhoods feature:
- Good schools and low rates of crime
- Nearby amenities such as parks, restaurants, and movie theaters
- Lower property taxes
- Job growth
During this time, you’ll also need to secure financing for your big investment. Your mortgage lender will help you to explore your financing options, but several possibilities may include conventional mortgages, home equity loans, or private money loans.
3. Decide How You’re Going to Manage It
After you’ve purchased your first investment property, you’ll need to determine whether you’re going to pay for professional property management services—or manage the rental home on your own. As the owner and manager of a rental property, your responsibilities will range from tenant screening and rent collection to performing timely repairs and replacements when something breaks or stops working. However, a property management company can help to take some of the weight off your shoulders—especially if you don’t have a lot of spare time on your hands to maintain the home, screen tenants, collect rent, and check in with your renters.
4. Attract Prospective Tenants
Once you’ve decided how you’re going to manage your investment property, it’s time to make a few home upgrades that will help to attract potential tenants and increase the value of your property. To enhance the curb appeal of your rental property, for instance, you might choose to give its exterior a fresh coat of paint or change the color of the home altogether. Typical project costs average $2,500, but the cost of painting a home’s exterior will depend on the below factors:
- How easily the paintable area can be accessed
- The size of the home
- The type of material that needs to be painted, as brick or stucco materials typically cost more than wood or vinyl
Moreover, several other great upgrades and improvements include painting the walls in the kitchen or bathroom, purchasing new window coverings, and replacing or painting the front door to the home. If necessary, you may choose to replace one or more of the appliances as well.
A Final Word
Purchasing and managing your first income property can be risky, challenging, time-consuming, and downright overwhelming at times, but it can also be financially rewarding—especially if you keep these tips in mind as you search for a home to invest in. From the tax benefits you could qualify for to the equity you’ll build over time, investing in a rental property could be a risk that’s well worth taking.