I’m a dad, and I’ve been a sole proprietor for most of my career. That said I have to think about what I’m doing to save for my family, for my son’s college and for mine and my wife’s retirement often, because it’s not built into my income like at most 9-5 jobs.
If you’re anything like me, you’re always looking for those ways to set money aside, or make passive income to help support those goals. Buying rental properties is one of those methods, and if that’s on your list, let’s talk about it.
Your first step is to figure out the money. Most first-time rental investors are going to need to finance the property they intend to buy. I’ve seen mortgage companies and banks loan investment properties with as little as 15% down, but that doesn’t account for the 3% you’ll need for closing costs – and some lenders need to see that you have 6 months of mortgage payments in a bank account to avoid default in the case of a slow market, or worse – a pandemic.
If that sounds like a lot, don’t be discouraged. There are still good investment properties out there at or under $100,000, even around Nashville. They’re fewer and maybe a little further between, but they exist. And because you can hire companies to manage your property for you, I would look a little outside of town as well. My personal investment property searches alert me for properties as much as an hour away from where I live.
That brings me to the next point; picking your target neighborhood. What you’re looking for generally is an emerging market, or where the corporate money is going. If you can target where companies are investing and adding new locations, that’s a great place to start.
Now, about the property you plan to purchase. You will want to be able to anticipate and address your overhead needs. Some of this is going to be helped by your savings of 6 months’ rent, but maintenance costs, management fees and of course unexpected expenses need to be considered.
How old is the property? Who will the ideal tenant for that property be based on location and the look and feel? I find that thinking about the property as a product helps a lot in terms of assessing the risk potentials.
Will it rent easily to the preferred tenant? How long will that tenant typically stay in one place? Will the property need a lot of upkeep, or is it newer, and does it have appliances that will last a few years?
These are all questions to ask when you’re looking for investment properties. Then there’s the obvious; how much will the property gain month over month? Because that’s how much money you will be setting aside for a rainy day, and to buy your next one.
It may seem like a lot, and truly it can be if this is your first rental purchase. It’s more than just buying a house, it’s investing in a business. That’s why it is key to have someone in your corner that can help assess the purchase and make sure it fits in line with your plan.
I hope this video was helpful – and if you have any other questions, give me a call anytime.