You’ve heard about real estate investing, but what is it?
Rental investing has always been an amazing option for passive income, but only has recently become popular among younger adults. How can you buy your first rental property?
Historically, rental property investing has been a smart way that the rich maintain and growth their wealth.
Yet it is becoming far more simple and affordable to get into this unique market and make passive income gains!
Now, before we begin, do understand that everyone has different experiences with any and every type of investing. There is always risk.
Rental investing can be very successful, helping people to quit their 8-5 jobs and live a financially free life. Like any investment, it isn’t guaranteed.
What’s exciting is that getting prepped for purchasing your first property, to start earning passive income, isn’t as hard as you’d think!
We compiled the top tips about how to prepare and save up for your first rental investment!
8. ESTABLISH YOUR SPENDING AND SAVING HABITS
Rental investing does take a bit of capital ahead of time. The first place to start, if you plan to one day purchase your first property, is to manage your money!
Sounds simple enough, but it’s a serious concept.
Too many of us are spontaneous spenders. Many like to live up to the Joneses down the block. You may not have enough money to buy a property and afford a nice home for yourself.
But, there are good chances you can afford to purchase a small rental property and live in a smaller home. As in, by accepting and fully embodying a minimalist or frugal lifestyle, affording your first few rental properties will be extremely easier!
That's why it's important to start out now. What's great is that you can do this while working on the following steps.
7. GET EVERYONE ON BOARD
Becoming a rental investor can be a huge commitment. It can be life-changing for your family (whether you’re newly married, live with roommates, or still live at home), which is why this is the next step to take to prepare for your first property!
When you decide you want to work toward your first purchase, and you begin personal finance management (budgeting and saving), you will change. Your views about money will transform! If you live with another individual, a spouse, or if you have a family, it is important to not keep your financial goals to yourself. You should have open discussions with your significant other about your ideas.
6. FULLY UNDERSTAND YOUR CURRENT FINANCIAL SITUATION
When you’re ready to budget, the next step is to discover your net worth. It is important to learn about your net worth so you can start out budgeting and prepping for your home with a full understanding of your current financial situation. It’s easy to ignore your debt, liabilities, and loans! You may feel ashamed or want to ignore it.
However, purchasing a home will only add to your debts! This isn’t necessarily a bad thing, if done correctly.
The whole idea is to watch your spending habits, learn about your cash flow, understand your investments (or learn about what you want to invest in), and prepare for your financial journey. (There are a lot of apps that can help you do this, like https://www.personalcapital.com/financial-software)
5. GET RID OF DEBT FIRST
Now that you’ve looked at your financial situation, and have started analyzing your personal financial situation, it is important to establish a plan of how to rid of your debt. There are countless ways, from printables, to checklists and cash envelopes.
It isn’t required to rid of all your debts before investing in rental properties, but important to consider how much more debt will be added when you begin!
To minimize future stress, it is recommended to use a method to pay off your small debts. Credit cards, small loans, IOU’s, etc. Of course you may be wanting to find your first property now. Maybe your coworker or cousin has been talking about their growing portfolio of investments, and you feel left behind.
Don’t worry. It is critical that you don’t rush into this! By building up your habits and ridding of debt first, you’ll be far more prepared to focus on your fun and exciting investment. It will be worth building your foundation first!
4. TACKLE STUDENT LOANS
Student loans only continue to grow interest. As a young adult, you probably have student loans to your name. Of course you want to prepare everything you can to get your perfect first investment home! One of the best ways to prepare is to get rid of your nagging student loans.
Now, if you have more than $100k in loans, you may be shaking your head at this. “Paying that off will take forever!” Understandable!
If you have under $100k, it is recommended you establish a plan and meet with a financial advisor to learn how to pay it off sooner. It takes every previous step in this article to get that money paid off. And, possibly a few years.
Depending on your determination, you could pay off loans significantly fast, or over decades.
If you have over $100k, you could potentially plan to have rental properties help pay off your loans over time.
So, as you plan, give a serious look into how you want to rid of your loans! Although it seems unrelated to your rental investing, it is absolutely related to your financial situation!
3. CONSIDER PARTNERSHIPS
Once you get to this step, you are far ahead of the majority of all young adults.
Very few people actually stick to a budget. Not many properly plan for retirement. Others don’t understand what investing even is, or how to do it. But you’re far ahead. You’ve spent time analyzing your financial situation, you understand your net worth, you have learned a lot. Your debts are reduced and you’re ready to make another step forward. Unfortunately, you don’t have firsthand experience with rental investing.
In the next step, we’ll dive into a handful of ways to gain experience before buying, but first, let’s talk partnerships.
In many cities, there are meetups and talks that are held by entrepreneurs, investing firms, or even small groups. Go visit Facebook or Google to see if you could join one to learn from people who actually have experience! Or, if you know of anyone personally who have rental properties, that’s even better!
The idea now is to learn!
Plus, you probably won’t have the capital necessary to buy a rental in cash at the moment. Consider a partnership! If you have money to put into a home, and know someone who has experience, you could jointly purchase your first property with an experienced property owner. The trick is finding someone who would be willing to help you learn.
2. UNDERSTAND THE MARKET
As you are working toward each of these steps, it is critical to start learning about rental investing! This is a great time to find a realtor with experience in investment properties. Looking at a home for renting is absolutely different than looking for a home you'll personally live in. An experienced realtor will understand that and by speaking with someone who is more experienced, you have the potential to learn farm more than you will learn in books.
Be Your Own Inspector
As you gain experience with learning about rental areas around you, and you ask questions, you'll start learning about what it takes to look at a home like an inspector does. Since you won't be looking at a home for yourself, it's important to look beyond the aesthetics; with a rental, you're looking for durability and longevity. For example, important details you'll need to learn are: what types of cracks are in the foundation, what types of heating and cooling units does the home have & prices to update it, recognize water damage or signs of leakage, as well as notice any termite or bug damage. These are just a few of the many things you'll learn to recognize when going through homes. Of course, you should get an inspector when you do ultimately put an offer on a home, but by being able to pick out these large, pricey items it will save you plenty of time in the long run.
1. DO YOUR DETAILED RESEARCH
The best asset to your rental success is your education.
You don’t have to become a realtor or go to college to be a successful rental property investor! You also don’t have to be wealthy to grow a huge portfolio of properties.
It is about learning everything you can to optimize your chances for buying the perfect properties, getting the best tenants, making the best financial decisions and purchases, and building your wealth!
Information for this blog post was retrieved from an article titled, "How Millennials Can Buy Their First Rental Property" written by Scarlett Marie McKnight for https://thirtyeightinvesting.com/