How to Succeed With Your First Investment Property

Small home as a first investment property

Owning rental property is a great way to create a strong financial future, but if you’re purchasing your first unit, keep these tips in mind before you buy…

14 Tips for Purchasing Your First Investment Property

1. Talk with Other Landlords Before Buying

If you want to be a successful property investor, you need to talk with people who have a sustained presence in the market. Talk with people who understand the challenges and can give you guidance to succeed, and see if any would be interested in mentoring you.

2. Maintain Responsible Borrowing

It might sound strange, or at least uncommon, for a lending agent to recommend responsible, patient borrowing, but above all we want you to be successful with your investment property. With that in mind, we need to remind you that all of your borrowing should be done in wisely so you don’t overextend your finance.

3. Have Positive Cash-Flow with Your Properties

If you are purchasing property for the first time, you should stick to properties that only bring a positive cash flow. By this, we mean the money you earn (the rent payments) should be more than all of your expenses, including mortgage payments, taxes, repairs, maintenance, marketing, and other costs of ownership. If possible, leave a margin for error to compensate for unforeseen expenses. As you build a portfolio, you can purchase homes with negative cash flow and have the income to handle the costs. But always start with positive cashflow.

4. Research the Mortgage Industry Thoroughly, Then Research Some More

Unless you are purchasing the home with cash, one of the most important aspects of successful property investing is a thorough knowledge of the mortgage industry. Loans for investments are more complex, so take your time, read numerous books, and talk with local experts. You may even consider taking a few classes on the subject so you completely understand mortgages.

5. Consider Forming an LLC

If you own your rental property as a personal asset, you are putting your personal wealth at risk. If someone were to hurt themselves on your investment property, they could sue for damages and seize personal assets. However, if you keep the property in an LLC, you will significantly reduce the overall risk associated with being a landlord.

6. Start with a Small Single-Family Home that is Move-In Ready

As a new property investor, you have a lot to learn, so it’s best to keep things as simple as possible, at least to start. Few aspects of the property industry are as simple as single-family homes, so use one to start your portfolio. This will let you ease into property investments and test if it is really the right choice for your future. If not, you’ll also have an easier time selling a single-family home than, say, a commercial property or multiunit home.

7. Start in Familiar Areas and Settings

Investors beginning a portfolio will want to stick with cities and communities with which they are familiar. It’s not recommended that you purchase a property in a city where you have never spent any time, as you’ll need to understand the local market in order to find the right tenants, set appropriate rent amounts, and find services for the property.

8. Look for Properties Near Amenities, Conveniences, and Stores

Park with green grass and trees
Look for properties near parks, which will attract renters.

The most in-demand properties on the rental market will be the ones that offer tenants convenient access to shopping, transportation, and other amenities. Properties on or near bus routes are always popular, as are homes near shopping centers, parks, and grocery stores.

9. Have All Properties Thoroughly Inspected

Before buying any property, you need to have it properly inspected. Many experienced investors can share stories about skipping an inspection and paying for it later; learn from their mistakes, not your own! Although you want to make the purchase as affordable as possible, having thorough inspections on your property will ensure fewer unwelcome surprises, so don’t skip termite, lot, mold, and other important checks.

10. Plan Your Marketing Strategy, Then Estimate the Costs

Tenants won’t just magically appear at your doorstep, you need bring them in, and this means advertising the property. It’s crucial that you find tenants as quickly as possible, so create a plan for marketing the property online and in classified sections to ensure a vacant property doesn’t consume your cash flow.

11. Screen Tenants Thoroughly

You need to be as thorough as possible when it comes to selecting tenants, because few things can ruin your returns, as well as your enthusiasm for investment properties, as a bad tenant. Over time, you will develop a successful process for finding good tenants, but make sure you start with proper vetting of applicants. This should include researching previous addresses, talking with former landlords, checking criminal records, and looking at eviction histories.

12. Research Inherited Tenants

Just like tenants you bring in, you also need to check on the tenants you inherit from currently-occupied properties. Before buying, talk with the current landlord and request information on rent payments, as well as any issues, such as damage to the home, that may impact your profitability.

13. Hire a Property-Management Company to Help You Get Started

Being a landlord can be tough, so many people will be better off if they use a property-management company. Think about the time you have to spend on repairing a home. Do you want to take calls from tenants at 2:00 in the morning because of a clogged drain or broken furnace. If you don’t, then a property-management company may be able to help, but be sure to work this into your cost analysis.

14. Set Up Online Rent Payments

Why make it difficult for renters to pay you? Set up online rent payments and you’ll be able to decrease the chances of a missed payment, bringing greater profits and consistency to your home.

Get the Advice You Need for Investment-Property Loans

While we’re not investment experts, we understand the importance of an affordable investment-property loan. Contact our staff and we’ll show you all the various options you could use to purchase your first investment property.

CONTACT SAN DIEGO PURCHASE LOANS TODAY!

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