When Should I Invest In My First Rental Property?

Thinking of getting into rental investments? Your first question should be: “When should I Invest in my First Rental Property?”

Rental Households Are Growing: Know these facts. A study by Statista revealed, “In 2019 - 44 million residents were renting single-family homes in the U.S.” Also, Urban.org predicts “a 21% increase in new rental households by 2040”.

First, you need to create a well-mapped-out plan to lower your risks. As the old saying goes: “If you don’t make a plan, you’re planning to fail!”

Read below to learn what important factors you must include in your plan.

KEY TAKEAWAYS

• Learn how real estate investments give you an advantage during times of high inflation and mortgage rates

• Follow our 6 Steps to identify the type of rentals you want, how to budget, get pre-approved for a loan, and how to find and buy your ideal first rental.

• Read our informative article links that educate you on the important principles for rental investments.

• Learn how to profit with rental investments.

Worried about the Current High Inflation and Mortgage Rates?

Don’t Worry! We got your back. First, read our recent article:

“How Real Estate Protects You During Inflation” where you will learn about the advantages investing in real estate gives you during high inflationary times.

Forbes sums it up, “When the market takes a downturn is when some of the most successful real estate investors have piled up their rental portfolio.”

Then, read the steps you need to take to make your first rental purchase a success.

Here are the 6 Steps for When Should I Invest In My First Rental Property

Step 1: Identify the Type of Rental Property You Want to Buy

Motley Fool emphasizes the importance of getting your first rental investment purchase right. “Deciding to invest in your very first piece of rental real estate is the first step toward generating a passive income and creating long-term wealth.”

You will find out that rental real estate consists of a wide range of properties. You can buy a single-family home, or a duplex, all the way up to an apartment building.

This is where you need to educate yourself about the different types of properties you can buy. Here’s how.

Know the Industry

Start with what you can afford to buy. If it’s a single-family home or a condo unit, learn about this specific industry.

Luckily, we published past posts here that will help you like:

• “Should I Flip or Rent Homes?” learn the benefits of home rentals;

• “What Is The BRRRR Method In Real Estate” explains the Buy, Rehab, Rent, Refinance, and Repeat method for greater profits.

• “Pros and Cons of Online Property Value Calculator” with a link to a free online calculator which shows the current market value and equity for any home you are considering buying;

• “San Diego First-Time Homebuyer Programs” includes valuable information about government-sponsored loan programs for rentals;

• “What is Important When Selecting a Mortgage Lender?” which saves you money when getting a rental loan;

• “How To Understand California Escrow Costs” learn about all the escrow fees to include in your budget; and

• “How To Lower California Escrow Closing Costs” find out how to lower escrow costs on your rentals.

Also, the WeLease Property Management Company publishes useful articles like:

• “How to Make Millions with Rental Properties”;

• “Why You Should Start Investing With Single-Family Rentals”;

• “How Novices Buy Small Multifamily Properties”;

• “What You Need to Know About Real Estate Investing in San Diego”;

• “How To Get Started As a Landlord”; and

• “Should You Self-Manage Your Properties or Hire a Pro?”.

Tip: Roofstock recommends “Hiring a property manager allows an investor to enjoy the benefits of owning a rental property while avoiding the hassles of being a landlord.”

If You Are Investing in San Diego County

WeLease Property Management Company provides experienced property management services for all types of rental properties. They were recently voted the Best Property Management Company in San Diego for 2022 by readers of the San Diego Union-Tribune.

Contact WeLease to learn how they can save you time and money and eliminate the stress of being a landlord!

Step 2: Create a Budget

Once you decide what type of properties you want to buy and rent, you need to create a budget. This will protect you from overspending and running out of funds before you can begin renting.

You don’t need a large budget. Like most startups, you must start small and expand when the time is right. That’s a standard safe business practice.

Many investors start small like a condo and then a single-family home and later move up. It’s similar to learning how to ride a bike. Start with training wheels and then jump into solo biking.

Step 3: Get a Pre-Approved Loan for your First Rental Property

Once you create a working budget it's time to seek a pre-approved loan. Pre-approved means what it says. Get a bank or a mortgage broker to review all your financial records to determine how large of a loan you can afford to pay. Look at it like a risk assessment. Lenders don’t want to loan money to someone who can’t pay it back.

Several options exist for the types of loans you can seek. Again, read these articles about these options and how to get them:

• “The Essential Guide to Multifamily Financing”;

• “How to Invest in Rental Property with Little Money”; and

• “How Do You Use Leverage To Build Wealth?”.

Take advantage of these articles. It’s imperative that you first get a pre-approved loan.

Step 4: Learn How to Analyze a Rental Deal

With your pre-approved loan letter in hand, you are now ready to figure out what it takes to analyze a rental deal to avoid buying a lemon. Failure on your first deal is mortal!

Analyzing potential deals is an important skill. It saves you from buying an overpriced property instead of valuable property. Yes, you must learn to focus on value!

Now, understand that analyzing real estate deals is a lengthy process. Sure, there are so-called quick formulas and rules of thumb out there, but they are only quick guides. For example, here are some articles explaining some of them:

• “2 Rules of Thumb to Size Up Deals Quickly”;

• “Should You Invest in Older or Newer Rentals?”;

• “How to Avoid Your First Real Estate Investment Mistakes”;

• “Why Real Estate Rental Investors Fail”;

• “How To Get Better Real Estate Deals (Tips from the Pros)”; and

• “Rental Investors Share Secrets”.

Don’t be scared off by getting into a lengthy process to fully analyze deals. It’s a skill you can learn and it will save you a ton of money. Here are some of the important steps you must take to fully analyze a rental deal:

1. Select a location ideal for a rental and compile property information;

2. Do a Comparative Market Analysis (CMA);

3. You must analyze appreciation rates, your rental strategy, and target tenants in that location;

4. Now you must make a financial analysis to determine your net operating income;

5. Figure out your Return On Investment (ROI); and

6. Determine your Capitalization Rate (CAP).

Learn more about these critical steps by reading these articles:

• “How to Understand CAP and ROI Rates”;

• “Understanding Due Diligence (For Buying Real Estate)”;

• “How to Perform a Property Records Search in California”; and

• “How to Find California Property Owners Information”.

Step 5: Find Your First Rental Property

You can spend hours online looking at what’s available or driving around the target neighborhood looking at “For Sale” signs. Yet, why waste all that time?

Save time by working with a local Realtor. Your Realtor knows the rental market in your target location and it won’t cost you anything!

If You Are Searching for Rental Properties in San Diego County

San Diego is one of the best cities to invest in rental properties for 2022 and 2023. Read why:

“San Diego ranked #2 Most Desirable to Rent City in the U.S.” in 2022.

SoCal Lifestyle Realty knows all the neighborhoods in San Diego County. Our experienced Realtors can help you locate the best deals for whatever type of rental you want to buy from a condo, single-family home, duplex, or apartment building.

Contact us today before wasting time trying to figure out where to look.

Step 6: You Are Ready to Buy

Working with your local Realtor with present you with options for your first purchase. That’s where your analysis will separate the good from the bad investments.

Your Realtor will help you by doing the CMA for you and advising you about the best price for your first offer. Then, your Realtor will negotiate with the seller to get you the best price and terms. Finally, your Realtor will present the seller with a Purchase & Sale Agreement that protects you.

The escrow closing process will be explained to you by your Realtor who will take the steps to get the closing procedures started and advise you towards the final closing.

Don’t forget to invite your Realtor to your closing and title celebration!

When Should I Invest In My First Rental Property? – Conclusion

As you just read, the answer to “When should I Invest in my First Rental Property?” is not simple. That’s why you must read our suggested articles.

Better put, you must learn these 6 principles:

1. Identify the type of rental property you want to buy;

2. Create a budget based on what you can afford;

3. Get a pre-approved loan letter for your first rental property to show sellers;

4. Learn how to analyze rental deals;

5. Work with a local Realtor to find your first rental property; and

6. Use your Realtor to help you when ready to buy, close, and get the title.

Are You Ready to Buy Your First Rental in San Diego?

SoCal Lifestyle Realty offers you experienced Realtors who know every neighborhood in San Diego County. Take the time to meet with one of us to learn the best locations and types of rentals based on your desires and budget.

Contact us today to save time by letting us find what rentals you seek faster and negotiated with the seller for the best price and terms for you.

Steven Rich, MBA – Guest Blogger