Thinking Of Buying A Rental Property? 10 Tips To Know Before You Get Started
One of the fun things about being a multifamily broker is helping clients buy their first small rental property, then continuing to advise them as they fix it up, sell it for a profit and work their way up toward more and larger rental units. Sometimes the fear of the unknown holds people back. But once they buy their first property, most investors I know hit their stride and never look back. I put together a checklist of things new investors should know when thinking of getting a rental unit for the first time. I wish I had someone give me this advice when I was getting started.
1. Do your homework. There is so much information out there about real estate investing to consume and learn from. Read books. Listen to podcasts. One of my favorite reads is Rich Dad Poor Dad by Robert Kiyosaki and Sharon Lechter. It’s very simple, but a good starter. I also recommend reading The ABCs of Real Estate Investing: The Secrets of Finding Hidden Profits Most Investors Miss by Ken McElroy and Real Estate Investing for Dummies. Trade publications from the Urban Land Institute and National Multifamily Housing Council are also good resources.
2. Find a mentor. Once you’ve done your homework, find someone who has owned rentals already. Books and podcasts provide a good foundation, but there’s no substitute for hearing about others’ experiences firsthand and learning from what they’ve done right — and what they’ve done wrong. Both my grandparents on my mother’s and father’s side of the family-owned apartments and lived in duplexes they owned. I learned a lot about repairs, tenants, and how to run properties from them.
3. Be wary of seminars. A lot of people spend a lot of time and money on seminars. Be selective about which ones you choose to attend. Some are presented as educational opportunities when they’re actually sales seminars in disguise.
4. Talk to an active broker in the market. Find a broker who has done several deals in the area you’re interested in and schedule a call to talk about your goals. A good broker will be happy to share their insight and expertise to help you in your search for the right rental property.
5. Pick the right location. The old saying “location, location, location” is true. Even if you think you have found the ultimate diamond in the rough, your improvements won’t be enough to make it work if it’s in an undesirable location — you can’t fix the neighborhood. A building that needs work isn’t the right property if it’s in the wrong neighborhood.
6. Don’t over-improve it for the market. You will only get so much rent no matter what, based on the market. Sometimes the little things do a lot to a property. If a cast iron bathtub looks rough, recoat it instead of replacing it. Resurfacing rather than replacing laminate countertops works too. Painting, carpeting, landscaping, and lighting go a long way.
7. Don’t go overboard with technology. Smart home technology isn’t always necessary to attract the right tenants and can add complexity to what you have to take care of.
8. Start small. Aim small, miss small. Starting with a duplex or fourplex first is often the right move. Many new investors don’t realize these types of properties are financeable with residential loans, not commercial loans. And of course, down payments are more palatable. You can learn a lot by managing four tenants yourself. Managing 400 takes staff — maintenance, leasing, and an on-site manager. Small properties offer the same concept, but it helps to understand it on a small scale first.
9. Take advantage of resources from local apartment associations. Local apartment associations have divisions devoted to owners of smaller properties. They can provide a leasing form, provide legal help, and even offer training and classes that help you become a better owner and landlord. They also are a great way to meet vendors you will want to know.
10. Don’t complicate things. Ultimately, keep in mind that things don’t need to be so complicated. Real estate is a people business. Find good vendors and contractors. Do the work that you can yourself or find good people who can do the work at a good price. Have fun.