Rental Property Investing for Beginners: Smart Tips to Take Your First Financial Step Forward

Investing in rental properties is one of the best ways to begin accumulating wealth. You not only build equity in the properties you own as you pay them …

Investing in rental properties is one of the best ways to begin accumulating wealth. You not only build equity in the properties you own as you pay them down, but if you work your numbers right, you should also be generating some positive cash flow each month. However, like any other type of investment, there are some things you need to know before diving into the deep end of the pool.

Here are some smart tips to get you started with rental properties:

Fix Your Financial Situation

Don’t do anything until you’re sure that your credit and finances are in good shape. If your credit history is questionable, you’re likely to have trouble acquiring financing. A high debt-to-income ratio is a red flag that will prompt most lenders to reject you right away. It would be best to take care of any outstanding debt before attempting to get financed for a house. 

Educate Yourself

Before purchasing any properties, take a few months to familiarize yourself with the real estate business and learn what will be expected of you as a landlord. There are lots of books you can read and clubs you can join where you can meet other investors that can answer just about any question you may have. Social media sites are great places to meet investors, mortgage brokers and property managers. For all you know, the investor whose brain you decide to pick might end up partnering with you on a profitable deal sometime in the future.

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Check Out Lots of Properties 

As tempting as it may be to buy the first property you see that you think you can afford, it might not be a good idea. As a new investor, it’s going to take some time for you to learn how to spot a good deal and if you jump too soon, you may overlook something important and become discouraged when it doesn’t go as planned. Visit properties in different neighborhoods and ask to view units that are occupied (if it’s okay with the tenants). You’ll get a feel for what types of tenants you can expect to attract with each type of property in various neighborhoods and hopefully you’ll see what a well-managed rental looks like on the inside. 

Prepare for Expenses

Although it does happen, it’s unlikely you’re going to slide right into a property that doesn’t need any repairs whatsoever. Even if nothing’s "broken," it’s advisable to do at least some minor work to the property for the purpose of improving its appearance and curb appeal (think paint and landscaping). Furthermore, you’ll have to set some money aside for things like accounting, legal fees, garbage collection, pest control and vacancies. Remember that regardless of who your tenants are, they’ll probably stay for a few years and leave. At that point, the mortgage, taxes and other expenses on the property will have to continue getting paid, no matter how long it takes you to find new tenants.

Hire a Property Manager

Just because you’re investing in rental properties doesn’t mean you have to be the person answering the phone whenever something breaks in one of your units. Property managers make it their business to take care of these and other administrative tasks for you, so you can concentrate on other things, like looking for your next property. They can even find new tenants and screen them for you. Check out for more information on property management services.

Think Realistically

There’s nothing wrong with being optimistic, but your expectations of this real estate investing endeavor should always be grounded in reality. You’re not going to become a millionaire overnight and some of the deals you get involved with may seem rather modest until you develop the ability to spot better ones. If you quit your job expecting to make a fortune, you could find yourself heavily in debt and in worse shape than when you got started. There’s lots of money to be made in this business, but you’ll have to look at lots of properties, learn various types of buying strategies and figure out cost-effective ways to handle property-related expenses.

Above all, learn to enjoy this new venture you’re undertaking. Get to know as many people in the business as you can and read every book on real estate or rental properties that you can get your hands on. The more you know about how things work and how to avoid the pitfalls, the sooner you’ll start making the kind of money that allows you to quit your day job and pursue this full-time.


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