Top Ten Tips for Getting Started in Real Estate Rentals
It’s really not that hard, but you do need a plan. Even better, find an experienced mentor that can assist you through the challenges and give you real advice.
So, what do we tell novice landlords?
Here’s our unofficial Top Ten:
- Set a budget upfront.
How much are you going to spend to acquire? On rehab? It’s easy to get emotional when buying & rehabbing and getting in over your head. A property should meet your budget parameters. Don’t make the mistake of trying to fit your budget to a property.
- Pick an area that’s geographically acceptable
This can be implemented in one of two ways; if you’re investing near where you live focus on one area that you can get to easily. Don’t spread yourself around as driving too much is counter-productive. If you’re investing out of state or out of your home country, invest where you can access pertinent real estate data on the internet. It’s not a good idea to rely on others for the information until they earn your trust. Even then you always want to be able to double-check their data.
- Analyze the rental marketplace
Once you’ve picked an area, what’s the rental market like there? What is renting for the most? The least? How much are rents changing? It doesn’t typically make sense to buy rental properties in areas with little rental demand and falling rents.
- Analyze the acquisition marketplace
What will it cost to acquire and rehab a rental property in the area you’ve targeted? Is it within your budget?
- Determine multiple exit strategies
What happens with your rental property if you suffer a financial hardship? Besides renting it out, how quickly can you sell it and will you have to sell at a loss? Can you sell on land contract? Can you sell to another investor?
- Find an experienced mentor(s)
There’s an old saying about, “you won’t live long enough to make all the mistakes”. So, try to make as few mistakes as possible by finding a mentor who can help you avoid them. While finding one that invests in the same area as you is best, it may be difficult due to competition concerns. The next best mentor will be one that has about the same budget as you and invests in a similar area as you’ve targeted.
- Join a real estate focused group
You can’t find answers to everything on the internet and it can be difficult to make connections and find mentors there also. Find a local real estate investment group and attend in person. Don’t worry about what the topics are they cover too much. You’re primary reason for going is to meet other real estate investors.
- Build a power team
You really can’t do everything yourself and do it well and efficiently. You should understand everything, but too many investors pinch pennies and lose dollars trying to do it all. Pick up just about any good real estate investing guru book and they’ll all tell you to build a team of professionals you can rely on without micromanaging. Best place to start is by asking a mentor or other investors.
- Trust no one
This advice appears to somewhat contradict #2 & #8 above. It really doesn’t though as what you really want to be able to do is have a check & balance system for everyone you hire or do business with. Don’t blindly trust anyone. Always have a way to periodically check up on them. Otherwise you risk them costing you money, despite their good intentions and obviously if they have bad intentions.
- Set a time limit
Ever heard of analysis paralysis? Too many beginning investors can’t take the plunge and buy that first property. While you don’t want to set a time limit and buy something just for the sake of buying it, you do want to change your strategy if you haven’t pulled the trigger after several months. Get yourself out of your rut by changing or getting a mentor, find a partner for your first deal or two, etc The point is to stop doing the same things over and over again, hoping for a different result – as that’s the definition of insanity.
Well that’s our top ten list. It probably doesn’t cover everything for everyone, but what does.
Give these suggestions some thought and share your feedback.
Of course, we hope to earn our way onto your power team if you need a property manager at some point.