How to Buy Your First Rental Property and Create a Real Estate Investing Business
Imagine making $700 or more each month in passive income in just four months when you buy your first rental property.
That is exactly what Katrina has done. She bought two rental property deals after working with Dustin Heiner and Master Passive Income in just four months.
Now, she is making over $700 a month in passive income and going on to buy more properties with the step-by-step system with Master Passive Income.
Real estate investing is a great way to make an investment.
Compared to other investments available, having a rental property provides you more benefits that just making more money.
It ranges from a good income to becoming financially free. The process is long, but you’re bound to receive benefits worth more than what you initially spent.
So, how do you purchase a rental property, and how do you turn it into a business?
Why You Should Invest in Real Estate
Compared to other types of investments, real estate can bring you tremendous benefits, especially if you’re on the right path.
But when it comes to investing in real estate, simply purchasing a property and expecting things to start branching out from there will eventually take the wrong turn.
Before you start investing, it’s important to know why and how you should do it.
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Some ways you can make money from investing on real estate are the following:
Having a continuous cash flow
Your investments will replace your working income, becoming the source of the money you make.
The main difference between this way of gaining money and a job is that you don’t have to work hours to make a living. Investments will be doing the work for you.
You get cash flow when your rent is more than your expenses. For example, if the monthly rent of a tenant is $1,000 a month and the monthly expense is $800, then you will be making $200 every month.
If you owned more than one property like this, and the same calculations apply, then you could make even more. The amount of cash flow you receive is limited to the number of properties you own for this purpose.
Making money when you purchase something is called equity capture. This doesn’t mean that you can make money immediately after you buy something.
It means that when you buy a property for lower than its true market value, you are able to capture the excess amount in equity.
Say a property’s market value is $120,000, and you buy it for $105,000. Then you captured $15,000, which you can use to purchase more properties.
The market is ever-changing. When it crashes, it eventually goes back up.
Various factors can affect the value of a property, whether it’s demand or interest rates or even inflation.
Knowing your market well allows you to identify what improvements should be made to the home to bring up its value.
Appreciation on the property can turn into a profit when you either sell it off or refinance.
Forced appreciation means you are creating ways for the value’s property to grow.
Assume you purchase a property for $105,000 when its market value is $120,000.
By putting in $5,000 to repaint the property and fix up some its features, the property’s value can grow by 10–20%.
If the property’s worth goes up to $150,000, then there is a $40,000 gain that comes from forced appreciation.
Mortgage paid by tenants
Usually, your tenants will be paying off the mortgage for you.
For example, the property you purchase cost you $100,000. You get a loan for it with a down-payment of 4%, so you owe $80,000 for the property.
If you decide to rent out the home for the same length as the loan, then you won’t be the one paying the balance because your expenses are accounted for in the monthly rent your tenant pays.
Tax advantages refer to the ways of getting out of paying taxes legally, which can also be used to make money.
By owning real estate, you get business write offs, which you can use to offset how much of your income gets taxed.
You can also depreciate the value of your property. The period of the depreciation will offset your income from the property for the same length of time.
Acts like an automatic business
You can gain a profit from a rental property without having to do anything.
The tenants who stay in your property are those who generate the income for you. They will be the ones who manage the house and bring you your income, which leaves you with little to no work left to do on the property.
Gives you financial freedom
The income you get from rental properties can vary based on the value of the homes and the number of properties you own.
Eventually, you will be able to quit your job once the properties start making you enough money to become your main source of income.
You would be able to travel or go on vacation and pay your bills without a worry because you still have an income every month.
Put Your Finances in Order
Before you start investing, you have to be sure you’re ready for it. Understand the way money works, from the benefits it will bring you to how to utilize it to gain those benefits.
Reducing your expenses is one way to get your finances in order.
List everything you spend money on monthly and find what you can reduce or cut off. For example, instead of paying $60 for cable, you can use streaming services as alternatives like Hulu or Netflix.
Increasing your monthly income is another way to get your finances in order and prepare for investing.
Lastly, get rid of debt. Mainly consumer debt such as car loan, credit card debt, and the like.
Your debt gets in the way of saving money, so you should pay it off as soon as you can to be able to start saving sooner.
The main goal is to make sure you are able to put away more money every month, which will be the money you will use to start your investment.
Learn More on Real Estate Investing
It’s important to know what you’re going into before you take the big jump.
Although it’s good to read through blogs and books and listen to podcasts for tips, it’s not always going to be enough.
There’s a lot to learn when it comes to real estate investing. So, if possible, take a course before you get into it. There are courses available online, which often require you to make a small purchase.
What matters is that you’re getting a good foundation of knowledge to help walk you through the process of investing. If you get through it successfully, you’ll get back the amount you spent on the course in no time.
Save Up for a Down Payment
Your down payment will allow you to purchase a home for less than its worth, which will be part of the total purchase price if you get a mortgage.
Not everyone is going to be able to put away savings the moment they decide to. If you’re one of the people who are starting from zero, there’s nothing to worry about. This happens a lot for others.
To overcome this, set your goals straight.
Figure out how much money you will need to make the down payment, what kind of property you’re looking into, how long it will take before you make the purchase, and so on.
Increasing your income, reducing expenses, and paying off debt are a few of the many ways to start saving for a down payment.
Make sure you pay yourself first before you pay for other things. That way, you will be able to put a certain amount in your savings instead of worrying about how much you can save after spending and paying bills.
The money doesn’t need to be a great amount. Although ideally, it should be at least 10% of your monthly income.
Decide on Property to Invest In
There are a lot of different properties and deals available in the market.
What you choose will depend on how you want to make your business along with other factors such as how quickly you want the business to grow and how high the risk is for debt.
Before you settle with a property, look at the different types on the market, from the lower priced to the higher priced.
A property sold at a lower price is typically aged and may need a few repairs. A higher priced home may be almost or completely brand new. You’ll be putting more money toward a cheaper property to maintain it, but you would get less cash flow on a pricier property.
The location of the home is also a factor in finding a good property to invest on, although areas where properties are in demand are likely to cost more.
Weigh the pros and cons from each of them and figure out which will be a better investment for you.
Build Your Business
Buying a property and opening it for rent is an easy job. However, doing this doesn’t always guarantee your success.
Like other businesses, you should build it before you start it. In the case of rental properties, the property itself will be your inventory. Without a proper business, there will be no place to sell or rent the inventory.
First, identify your goals. Once you get that done, look for options that will fit the goals you have in mind.
Look for a place you want to invest in, where you believe you will get the most benefit from.
This way you can see the good and down sides to investing in different homes until you find the right property to help you achieve your goals.
Sort Out Your Financing
After you find yourself the right place, it would be time to sort out your financing. Make sure your options available fit your goals and are within the area you want to invest in.
Look around for as many properties as you can that have the requirements you’re looking for. This way you can have more inventory to add to the business.
Next is financing.
If you have the capacity to purchase properties with cash, you can start = there. You can refinance the property later and get money back.
Find yourself around two or three mortgage brokers in a particular state who can lend to a different state you choose.
At a time like this, using your connections with other people would be helpful. Ask them about their rates, fees, and points, which are percentages.
You will also need to organize your documents and show the mortgage broker that you are financially stable enough to pay off the loan.
Look for Investment Property Deals
There are various websites that do the work of providing you with properties. For example, Roofstock, Zillow, and MLS. These websites list different properties available either directly from a homeowner or through a realtor.
A good deal on a property is one where you can make at least $250 a month. That will ensure that you will continue making money regularly.
Most realtors aren’t the most knowledgeable when it comes to investing. Their goal is generally to make a sale.
Ask for the opinions of property managers and other people in your business to know whether the deal really is good or not.
What You Need When Finding a Tenant
When it’s time to find a tenant, make sure you get every contact detail in the event that they get evicted or you need to contact them.
Write down everything, from their Social Security number to their work and past addresses. Talk to more than just one person to identify the tenant’s background and determine how good or bad the tenant really is.
It’s also important to make sure that every adult who will be living on your property is on the lease.
Placing the Tenant in Your Property
Once the lease is signed, you should collect the first month’s rent along with the security deposit.
If the tenant is known to have bad credit, it would be best for you to have them pay the next month’s rent as well.
When all is done, hand them the keys.
The first time may take a longer time, especially because you have to talk to a lot more people such as the property manager and contractors.
But the next time you purchase a property, with the experience you have now, it is sure to be simpler.
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