You want to invest in your first rental property but you don’t know how to turn that into a millionaire business.
Well, I’m here to teach you how! My name’s Balaji Badrinath and I welcome you to my blog post. Today I’ll be talking about how to invest in your first rental property the right way. Stay until the end of this post to learn all of my personal tips and tricks for rental property investment, without further ado, let’s begin!
Buying a rental property is a very significant investment, and the best part of it is that it can be a really lucrative one! Of course, as we’ve spoken about in my other exclusive real estate guides, you need to perform your due research before splurging a few thousands of your savings on a rental property. You definitely don’t want to be that guy or girl who purchased a property for the rental which no one wanted to rent in the first place. To avoid that, I’ve designed this guide with you in mind. I want you to follow these tips closely and see the results for yourself.
The first thing you should know is to develop a landlord mindset, and you should be able to do so way before you even purchase the property. If you’ve ever lived in a rental property yourself, you might know that we’re not in a high technology science fiction movie where houses are automatic and they clean after themselves. Our toilets do not automatically unclog and our drywalls also don’t get automatically repaired. That means that someone has to take care of that: the landlord.
As you get the hang of real estate, you’ll understand that you might need to develop some handyman skills if you are to keep your properties on the shape. It’s either that or spending money on having someone else do it, so it’s always good to learn yourself in case of an emergency. Learn your way around a toolbox and how to do some basic home repairs and you’ll be set to go to the next step.
You’ll be surprised to know that most people sell their rental properties or stop investing in real estate precisely because they don’t want to deal with the handyman stuff. But hey, who said this was going to be easy?
Next, before investing you should also pay any kind of personal debt. An expert real estate investor could carry debt as part of their investment portfolio, and that’s a very smart move, but not all real estate investors have a portfolio or are masters of the art of the debt either, so if you’re just the average buyer, I highly advise you pay down your personal debt as much as you can. That means credit cards, student loans, unpaid medical bills and other kind of debt. unless the return from your real estate is much greater than the cost of debt. If that’s the case, then you shouldn’t worry about it that much. But on the contrary, if your real estate returns are lower than your personal debt monthly payments, then focus on pre-closing those down and then go ahead and purchase your property.
Now, my next recommendation is to get your numbers right before you start and line up your financing early. What’s the financial instrument you’ll be using for your investment? Are you going to be purchasing your rental property cash, or are you going to use a mortgage? Should you choose a 15- or 30-year mortgage? A fixed-rate or adjustable-rate? To better weigh the true cost of your financing options, an online tool such as LendingTree lets several lenders compete for your loan. You can also consult with a financial advisor with a speciality in real estate or an expert on the topic like me, to better understand how much you’re REALLY going to be paying.
The next step is a fun one, but also a very important one. The secret sauce of real estate is none other than the location of your property. You could have a massive mansion for dirt cheap prices, but if it’s located in a terrible neighbourhood with clogging drains and bad infrastructure, then absolutely no one is going to live or conduct business there for more than a few weeks at most, turning your investment into a failure. Add to that the fact that you need to pay off your mortgage somehow and this will make your real estate journey harder.
That means two important things: one you need to have a good location especially if you’re taking out a loan to pay for your investment or if you’re using a mortgage as a financial instrument. Two, if you’re to be successful in real estate, your location is what matters most.
A good location is one that has a lot of development, low property taxes, a decent school nearby, and parks, malls, restaurants and movie theatres. Low crime rate and high employment rates never hurt anybody either.
Online, you can search for these traits in the locations you’re interested in purchasing. (show your hand on top) I also have another video talking about the best neighbourhoods in Bangalore and other interesting tips for real estate investors, so check those out for more guidance.
Now’s the time when you consult with the property consultant. Asking questions and getting the proper information from them is essential to a good investment. Ask them about the average rent in the area and how much an investment property like you might actually rent for in the area. You can, of course, also find that online, but my personal tip is to ask the property consultant directly. This information will provide good insight on how certain property consultants are able to rent out higher than average properties. You will also be able to determine how honest the property consultant is; keeping in mind that you will want to work with them for the long term anyway.
Next, you should get a home inspection. A home inspection might be an additional expense in your investment purchase, but the same as with consulting with an expert or a financial advisor, the intelligence they provide you is just too valuable to pass up. An inspection done by someone who knows what they are doing will point out all the red flag items that might end up costing you thousands of dollars after you already purchased the home. If there are a few items that aren’t working as they should in your investment property, that would instantly bring the value down and much worse if someone has already moved in.. It is important to also keep in mind that the results of the home inspection can be used during the negotiation stages of your home purchase. Whether it’s a reduction in price or asking the current owners to put on a new something before purchasing the home, the inspection is a vital part of completing your due diligence.
Make sure the land which you had zeroed in has all commercial approvals in place and the zoning code is right for suitable use, and ensure your builder architect team’s presents you a perfect plan for a great rental yielding as per the neighbourhood’s strengths. But you know what….You can do this after you have more experience in real estate investments, but for your first rental property, the best idea is to go with one that’s ready to go. You’ll learn plenty of valuable lessons throughout your first experience buying real estate. This is will give a better idea of what you’d be getting into with a potential rental property.
And those were my exclusive tips on how to invest in a rental property. Drop me a comment down below and let me know if this guide was useful to you, and also don’t forget to subscribe to my newsletters for more incredible tips, guides and life hacks of real estate in Bangalore. I hope you enjoyed this article, and I’ll see you in the next one!
Last Updated on October 29, 2020 by Balaji