Real Estate Investment Tips for First Time Landlords
Investing in rental properties is a great way to earn some extra cash. However, first time landlords are met with a set of challenges which can be costly if you are not prepared. If you ere planning on purchasing your first investment property, these real estate investment tips will help you ensure success.
Select the right property
The first investment tip for first time landlords is that you need to go through extensive research in order to find the right one. Profit is king in real estate business, so you want to make sure you invest in a property that is located in a strategic area to attract renters regardless of the market conditions.
To be able to achieve this, you’ll have to consider different financial factors, such as the type of tenants you are targeting, the area where the property is situated and its rental market, as well as the type of property that is more likely to secure a stable rental income (e.g. houses, apartments, etc.).
First time real estate investors should aim for properties in the mid to lower price-range to minimize risk in the event their first investment project does not produce the desired results. There is a significant learning curve when it comes to managing properties and it is better to go through some of the struggles and mistakes with lower priced buildings.
Find the Right Investment Mortgage Lender
Financing your investment property is a key component to your short and long term profitability. If your mortgage on an investment property comes with unfavorable terms, your deal may not turn out the way you planned. Here are some things to look for:
Interest rate – The most obvious thing is to try to get a rate that is as low as possible. However, if you are thinking about cash flow, then see if your lender offers an interest only rate. This will help reduce your monthly payment but you can still make principal payments if your budget allows.
Loan Term – Many investment lenders only offer shorter term adjustable loan products. Look for a lender who offers 10-30 year terms if your plan is to hold onto the property for a long time.
Pre-payment penalty – Some non-bank lenders will have pre-payment penalties of up to three years for mortgages on investment properties. Although this may not be an issue for you if you plan to hold onto the property for a while, it is something you need to be aware of because the penalty can be up to 3% of the loan amount.
Reduced documentation – If you do not think you are able to qualify using the income on your tax returns, then you may need to work with a Non-QM lender who can provide you with a mortgage using reduced documentation or no documentation.
If you need to discuss financing an investment property, we are here for you. Simply complete the short loan scenario form and someone will call you to discuss your options.
Tackle reasonable renovations
Before you make an offer on a real estate investment, you will need to consider having to tackle some renovations. You want to invest in upgrades that will ensure higher returns and the ability to use those upgrades to increase your rental income. However, this doesn’t necessarily mean spending a fortune.
You can make your property look attractive to renters without shelling too much money on renovation. The key is to invest in renovations that will either cut the expenses or help you secure a higher rental rate. That being said, you want to steer clear of any upgrades that will bring additional expenses (i.e. upgrades that require costly maintenance and repairs).
Be sure to work the costs of renovations into your calculations so you can get a rough estimate of the profit you can expect to make with your real estate investment.
Rely on the help from local professionals
When first time landlords enter a real estate market, it really pays to learn from those who have been in the real estate world for a while. They have the necessary knowledge and experience to share with you so you can be successful. Find a good local realtor who has experience with investment properties.
Knowing that effective marketing of rental properties plays an important role in the process. As an example, investors in Indonesia often turn to experts such as Jack Brown at Invest Islands when investing in that country. The local market knowledge and strategies helps especially when the investor is not familiar with that market.
Setting the Indonesian example aside, research and find a local realtor who is a true expert in real estate investments in your area. Everyone knows someone who is a realtor but you need to determine whether you will work with a friend, or an expert in investment properties.
Familiarize yourself with landlord-tenant laws
Owning a rental property also means familiarizing yourself with certain laws in order to prevent any lawsuits or potential income loss. From Fair Housing Laws that prohibit discrimination to eviction laws that regulate the eviction process, there are a lot of different laws that protect the tenants, the landlord, as well as the property that is being rented.
Other than getting to know these laws, you can further ensure that you are legally safe by consulting with a rental law specialist, especially when it comes to your rental contract. Learning the eviction laws are extremely important to the future profitability of your real estate investment.
Do thorough screening of potential tenants
For first-time landlords, the most important step you will take in this process is finding the right tenant. This will require performing a thorough screening of potential tenants. In essence, this means selecting the renters who will be able to follow all the rules listed in your rental contract, pay their rent on time, and, of course, take good care of your property.
To determine whether the tenant is qualified, your screening process should include checking their credit score to see if they’re eligible renters as well as doing a criminal background check. Taking time to screen potential tenants can potentially save you thousands of dollars you could lose in unpaid rent and spare you the time-consuming and costly process of eviction.
Maintain a good landlord-tenant relationship
Once you invest in a rental property, your main goal is to continue renting it out for as long as possible, since vacant properties translate to rental income loss. One of the best ways to prevent your rental from being vacant is to keep your renters happy and satisfied.
A good landlord doesn’t bother their tenants and constantly check up on them unless there are unpaid bills and rent. They keep the communication open, respond to renters’ requests and concerns, and make any necessary repairs in a timely manner.
They also know their rights and the rights of their tenants, and they do their best to treat them fairly, only intervening when it’s absolutely necessary (for example, in case of late payments and property damage). Doing all this will ensure you maintain a good landlord-tenant relationship and keep your rental filled for longer.
First Time Landlord Tips Summary
The life of a first time landlord comes with its own set of challenges, but if done right, it can be profitable and rewarding. Be sure to cross off these tips from your checklist to ensure first-time landlord success. Remember we can help you with your financing options and it is best to discuss this well before you start looking at properties.
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