You’ve realized that you can completely change your life by investing in rental property, but you’re not quite sure how to do it. You’re ready to be the driver of your destiny, but you need a little help to get on the right path. You know you need to purchase your first investment property, but you’re not sure what the best way to go about that would be.
How do I buy my first investment property? There are three main ways to buy your first investment property:
- Work with a full-service turnkey company
- Work with a realtor
- Do it yourself
For all three of these options, there are pros and cons you need to consider before deciding which is the best choice for you. Keep reading to learn about the benefits and costs associated with these three options.
Using a Full-Service Turnkey Investment Company
Using a full-service turnkey company is first on the list because it is one of the simplest ways to buy your first property. A turnkey property is a property that requires little to no work to be rent-ready. Sometimes, turnkey properties are already being rented and producing cash flow.
Full-service turnkey companies like Morris Invest will handle everything for you from providing a new construction rental, placing the tenants and managing it for you as well. All you have to do is pay for it.
The reason why this is great for a first-time investor is that it takes away a lot of the hassle of buying your first rental property. A reputable full-service turnkey company will know where and where not to buy in a particular market. First-time investors commonly get this wrong, which ends up costing them money.
The main advantage of using a full-service turnkey company is that they take care of every detail for you, big and small. This can save you time and money – just imagine how long it would take you to coordinate having individual vendors or contractors take care of all the various elements of putting a rental property purchase together. Or, how much money it would cost writing checks to multiple companies. At Morris Invest, we take on all the steps and also pass on deep discounts to our clients through our bulk purchases on construction materials.
Working with a Realtor – Not My First Choice
Working with a realtor has its own set of pros and cons. A realtor’s job is to match you with a home in your budget, help you with making an offer, negotiations, the home inspection, and closing on the house.
While you could technically do this alone, it can be risky if you do not know what you are doing. Aside from the fact that a realtor can help you in negotiations (and therefore, save you money), they also are more likely to have a better understanding of the legal jargon in complex contracts than you.
Getting yourself into a legally binding contract that you don’t fully understand is dangerous to your finances. You do not want to sign an agreement to find out later that the home has multiple serious problems you were unaware of. If this were to happen, you would have no recourse for getting your money back or requiring that the seller pay for the repairs.
Additionally, the realtor will do a market analysis to see if the seller’s asking price is reasonable according to market data. If you are not able to do similar research, you could end up overpaying for the rental property.
There are only a few situations when buying your first rental property alone would make sense:
- You are purchasing the home from a trusted family member or friend
- You have a good idea of the value of a specific home you want to buy
- You plan to work with an experienced real estate attorney to walk you through the paperwork
- Both you and the seller are not willing to pay for the commission for a real estate agent (usually, the seller is the one who pays the realtor fees)
Buying Your First Investment Property On Your Own
If you don’t want to pay a premium for using a full-service turnkey company or a realtor, then, of course, you can buy the rental property yourself. There is a lot to consider, though, before purchasing a home.
Because you will not have a full-service turnkey company or realtor helping you, you are going to need to do a substantial amount of market research on your own to determine which rental property you should purchase. To get a head start, you can read this article on how to perform a real estate market analysis.
Investing Out of State
One of the primary considerations you will need to consider is the location of the rental property. You don’t technically need to buy a rental property in your state. For instance, if you live in California, where real estate is expensive, you may want to check out real estate in nearby states. Purchasing a rental property in another state will require you to go out to that state to make sure everything is squared away before renting the rental property out to a tenant. Other aspects of the location you need to consider are:
- The vibrancy of local economies
- The safety of the neighborhood you are considering
- Unemployment rates in that area
- Per-capita income in that area
- Occupancy rental opportunities
For some investors, buying out of state is intimidating, and the logistics can be difficult. This is where a full-service real estate company can help. They can do all the work for you and have a property manager care for your out-of-state property. Here’s an article worth reading if you’re not convinced – Long Distance Real Estate Investing – A Proven Strategy for Wealth Building.
Funding the Property Purchase
Consider how you will purchase the home. If you do not have the finances to buy the entire property in cash, you will need to look for a way to finance it. You can either get a mortgage – a private loan, or a government-backed loan. You can find information about government-backed loans and others in our latest posts below:
If you’re having issues coming up with the downpayment, you’ll want to consider Fund & Grow. They provide unsecured business credit cards with zero percent introductory offers. You can read about them in this review we put together – Fund & Grow Review – Best Unsecured Credit for Real Estate Investors.
Always make sure to research the terms, rates, and repayment policies of each loan you are considering. The terms of your loan can significantly affect your ROI, so you must pick the lender that gives you the best conditions.
Once you have decided on the rental property you want and the way you will finance it, if it’s not a new construction property, you’ll need to consider the costs of remodeling the home and how long that will take. Make sure you utilize a qualified inspector to inspect the house to make sure there are no severe problems with the home that you aren’t aware of, such as a problem with the roof.
Checking older homes is crucial so you do not end up having to pay thousands of dollars in repairs that you were not expecting. Also, once again, make sure you hire a real estate attorney to help you with the legal jargon in contracts.
You also want to screen your tenants. Having bad tenants who call you at all hours of the night can make you miserable. Even worse, having tenants who don’t pay means you may end up having to evict them and end up with a vacancy. Make sure to check their credit rating and level of income as well as their criminal, rental, and employment background. I put together an article on this that you’ll find helpful – Safeguarding Your Investment: Understanding Tenant Background Checks and Security Deposits.
Lastly, you may also want to consider getting a property manager. A property manager will take those 2 AM calls from your tenants for you. Additionally, a property manager will screen potential tenants for you, evict tenants for you, and make sure you comply with federal, state, and local landlord-tenant laws.
Buying Your First Rental Property Is Easier Than You Thought
Now you know how to buy your first investment property! Ultimately, you don’t have to go it alone. If you do decide to try and buy your first rental property by yourself, make sure you are doing ample amounts of research, and always have the home inspected no matter what. That means making sure the house is inspected even if you are working with a full-service turnkey company or realtor. Too many first-time homebuyers make the rookie mistake of not having the home inspected or their contracts read by someone who understands them, and it ends up costing them a lot. Don’t be one of those rookie buyers.
If you’re a first-time buyer with no experience in the industry, I recommend having a full-service real estate company do all the work for you, one that will teach you the ropes along the way. Feel free to book a call with Morris Invest if you decide to take this path. We not only provide you with a new construction property, but also place a property manager and tenant for you, making it super simple to start your real estate investing journey! Here are a few resources that can also kickstart buying your first rental property:
Before you go, take a moment to watch the following video that includes a few real estate investing secrets:
