A Step-by-Step Guide to Investing in Rental Property

If you have been looking for a smart way to invest your money and create long-term wealth, you might have considered purchasing a rental property. It’s true that many first-generation millionaires have made their fortunes by acquiring and operating rental properties. It works because rentals allow owners to steadily build wealth through equity while also providing regular monthly income. If you’re a first-time investor who’s been considering buying rental properties, you should familiarize yourself with the rental investment process before diving in. In this article, we’ve put together a step-by-step guide to rental properties so that you can get the most out of your investment.

Step 1: Set Clear Goals and Objectives

Every successful real estate deal starts by having clearly defined goals for what you hope to achieve with the investment. Knowing what to aim for helps you point all your efforts in the right direction and increases your chances of finding success. Consider your main objectives for the investment: are you looking to add cash flow, or make a return through long-term appreciation? Once you have a clear goal in mind, you’re ready to move on to the next step.

Step 2: Establish a Budget

After you have set your goals, you’re going to want to evaluate your current financial situation to establish a budget. This is important because it will determine which properties you can realistically afford to invest in. Be sure to take all factors into consideration including your income, expenses, and any outstanding debts. You will also want to factor in the ongoing expenses for the property like maintenance costs, repairs, and landscaping/snow removal fees if applicable.

Step 3: Research Real Estate Markets

Once you have an accurate budget established, you can begin the search for a quality rental property. Start by determining which market you would like to invest in, and then take a look at the data on your chosen market. Consider things like rental demand, property values, and population/job growth. You can benefit from investing in a market with high demand for housing, since it’s likely to lead to higher rents and a greater return.

Step 4: Identify the Right Property

Taking it one step further, your next move will be to analyze potential properties along with the area they’re located in. Ideally you will be looking for a property that has qualities you know will attract renters. For example, a home is sure to be in higher demand if it’s in close proximity to amenities like shopping centers or entertainment. Once you think you’ve found a property that meets your criteria, be sure to order a property inspection to uncover any hidden issues that could end up costing you major later down the line.

Step 5: Secure Financing

Now that you have a good property in mind, it’s time to secure financing for your investment. You have a few options when it comes to rental properties ranging from a traditional mortgage, refinancing an existing property, or a private loan from a real estate lender. The benefit of going with a private money loan is a much faster turnaround time as well as funds provided for any rehab you would like to perform. Be sure to compare all loan terms and interest rates to find the one that best fits your needs. When applying, make sure to have all necessary documents on hand including proof of income and detailed information on the property.

Step 6: Make an Offer and Finalize the Deal

The next step will be to make a solid offer on your chosen property. Be sure to conduct research so that you can get a good idea of how much properties go for in a given market. Keep in mind that the US housing shortage means you will most likely be competing with other buyers, and it’s likely that properties will go for higher than their asking price. In such a competitive market, you should also be prepared to negotiate with the seller before an agreement is reached.

Step 7: Find and Screen Tenants

If the seller has accepted your offer, congratulations! You’re well on the way to owning a rental property. Now, it’s time to prepare to be a landlord. Your first order of business will be to fill any vacant units with tenants. You’ll need to market the opening by posting it online; sites like Zillow and Apartments.com can be a good start, but you’ll also want to post in local real estate groups on social media sites like Facebook. Before signing any paperwork, make sure to conduct thorough tenant screening by running a background check and credit report, as well as asking for references from their previous landlords if possible.

Then you will need to create a lease agreement that establishes all rental terms and tenant responsibilities, as well as covering your bases if something goes awry. Your agreement should address things like security deposits, pets, occupancy limits, and subletting. It’s also where you will establish late payment policies.

Step 8: Manage and Maintain the Rental Property

Now that you have a rental property and it’s filled with tenants, your main job will be to properly manage and maintain your investment. Start by establishing regular routines for rent collection, checking on and maintaining/repairing units, and keeping in touch with your tenants regularly to address concerns. If you aren’t already familiar with landlord-tenant laws in your particular area, now will be the time to do so; it can be what ends up saving you from the headache of dealing with a bad tenant. Finally, you may want to consider a property management company to handle the day-to-day operations of your property, but you’ll need to weigh the cost of this service against your monthly cash flow to see if it’s financially viable.

RCN Capital

The easiest way to save on a real estate investment is to find a trusted lender that can get you the best leverages and rates. RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors. RCN Capital also has flexible and competitive loan options available. Are you looking to purchase or refinance a long-term rental property?Connect with us today.