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How to Buy Your First Rental Property: A Comprehensive Guide

CEO Khai Intela
Owning a rental property can be an excellent way to invest in real estate. However, buying your first property is just the beginning of running a successful rental business. Without a proper strategy, you may...

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Owning a rental property can be an excellent way to invest in real estate. However, buying your first property is just the beginning of running a successful rental business. Without a proper strategy, you may face challenges such as long vacancy periods or unfavorable experiences with tenants. To help you navigate this process, we have compiled some essential tips for buying your first rental property and important factors to consider as a soon-to-be landlord.

9 Tips for Buying Your First Rental Property

Managing a rental property as a DIY landlord can be stressful, but there are ways to make the process easier. Here are nine tips to keep in mind as you go through each step.

1. Determine if You’re Ready to Become a Landlord

While rentals can generate passive income, being a landlord involves various responsibilities throughout the year. From managing tenants to handling maintenance issues, it's important to assess if you're ready to become a landlord. Consider whether you want to handle these tasks yourself or hire a property manager.

2. Secure a Larger Down Payment

Financing rental properties often requires a larger down payment and higher fees compared to owner-occupied properties. Most mortgage loans require a down payment of 3% to 20%. However, investment properties may require a minimum of 20% due to the higher risk involved. It's beneficial to have a savings account to cover the down payment and other property-financing expenses.

3. Find Local Investment Properties

Invest in properties located in desirable areas with in-demand amenities and proximity to highly-rated schools. You can work with a realtor specializing in real estate investing or use websites like Realtor.com® to find properties. Additionally, local wholesalers or courthouse auctions may also offer investment opportunities, but these properties might require more work before renting.

4. Create a Rental Property Business Plan

Establishing a rental property business plan helps outline your goals, strategies, and objectives. While not mandatory, having a plan ensures you're prepared to handle challenges in the market.

5. Determine Your Rent Price and Operating Expenses

Identify the rent price and operating expenses to assess the profitability of your property. Research rental sites for comparable properties or invest in an Avail Rent Analysis report for comprehensive insights. Operating costs can include maintenance repairs, online property listings, turnovers, and tenant screening.

6. Use a Rental Property Calculator to Determine Margins

Once you have the rent price and operating expenses, utilize a rental property calculator like Avail's to determine the property's profitability. Adjust your inputs to achieve the desired return on investment.

7. Purchase Landlord Insurance

Investing in landlord insurance is crucial to protect your property and mitigate potential risks. Tenants should also be required to purchase renters insurance to safeguard their belongings during the lease term.

8. Familiarize Yourself With Landlord-Tenant Laws

Compliance with local landlord-tenant laws and Fair Housing laws is essential to avoiding legal issues. Stay updated with any changes that impact the rental industry to ensure you protect renters' rights and handle security deposits, tenant screening, and evictions lawfully.

9. Invest in Landlord Software to Manage Your Rental

Managing tenants and being a landlord is a significant responsibility. Consider leveraging a property management software platform like Avail to streamline the rental process. Avail provides custom rental applications, lawyer-reviewed lease agreements, and online rent collection, all in one place.

Save Time and Money With Avail

Owning and managing a rental property requires proper planning and knowledge of local ordinances. Visit Realtor.com® to find available properties or connect with trusted realtors. Sign up for a free account with Avail to streamline the management of your first rental property and future tenants.

Now you have all the essential information to confidently venture into the world of rental property investment. Happy renting!