Table of Contents
In this article:
- Several factors play into how lucrative your rental property can be.
- Some of the best deals on rental properties aren't in regular home listings.
- Purchasing rental property can be a significant upfront investment: it's important to have a strategy for turning a profit.
So you want to learn how to buy rental property? Digging into the real estate market is one of the most effective and timeless investment strategies our nation has to offer. But it requires a significant amount of research, patience, and skill to execute it well.
Buying and holding rental properties is a long-term investment strategy that often results in consistent passive revenue. Whether your portfolio is currently empty or you’re looking to diversify, rental properties can provide a lucrative and long-term wealth-building opportunity that has the potential to change the trajectory of your career and your life.
The expert team at TRE is here to share this must-have guide before you spend a single dollar.
The TRE Guide For How To Buy Rental Property
As one of the premier real estate and property management providers in Texas, Teifke Real Estate has closed hundreds of rental property deals, both as an entity and as individual investors. We’ve seen great deals close on a daily basis, and we’ve also seen bad deals break new investors. Here are our top tips to ensure that you’re part of the first group and not the second.
Develop A Strategic Plan
Before you make an investment of any kind or choose a target location, it’s important to have a strategic plan in place for your property. How much money do you need this asset to generate? How long do you plan to hold on to it as a rental property? Are you planning to make any cosmetic or structural upgrades?
These are all questions you must ask yourself and plan for before buying rental property. Your answers will influence where you should buy, what kind of deal you need to secure, and what kind of financing will work best for your investment.
Location, Location, Location
Where you purchase a rental property home matters more than anything else. This will determine how much you’ll have to pay for the property, how much you can charge for rent, and the future value of the asset.
Do your research on the housing and rental market in your target area. Don’t get sentimental about any particular city, neighborhood, or home. Stick to your budget and your plan, or work with a skilled local broker to ensure you’re on the right track.
Build A Solid Team
You’ve heard the phrase it takes a village. When you are learning more about how to buy a rental property, this rings true once again. Building an effective team takes time, energy, and no shortage of people skills.
In order to find lasting success and have the opportunity to close not just one rental property deal but multiple, you need a full-stack team of industry partners. This includes financial partners, title companies, real estate agents, contractors, and property managers.
Start networking in your target area and build genuine, authentic relationships that are set up for long-term success for all parties involved.
Finding A Great Deal
This is one of the core elements of ensuring profitability when pursuing rental property investments. There is a myriad of ways to find motivated property sellers and distressed properties you could flip.
From scouring your local County records and foreclosure lists to staying informed of recent probate listings and evictions, there are nearly endless opportunities for a great deal if you know where to look.
Start driving through your target neighborhood and knocking on doors. Get to know well-connected people in the local community who may have a connection that would be interested in selling.
Start building digital lead lists and skip-tracing them or pick up the phone and start cold calling potential sellers. Create direct mail campaigns and SMS blasts that reach the right people you need to talk to.
Once you have them on the phone, it’s time to negotiate and properly structure a profitable deal that works for everyone. If the numbers don’t work, it’s not a great deal. If it’s not a great deal, it doesn’t belong in your portfolio.
Secure Great Financing
Another top skill of a successful rental property owner is the ability to secure financing with a quick turnaround. This means you’re not tied to conventional money such as bank loans or credit union loans.
Money can come from any direction under any terms. you just have to know where to find it. consider private loans with individual investors or friends and family. Learn how to find, identify, and pitch to capital investors.
Pursue real property or asset-based lending, also known as hard money. This type of loan is not dependent on your credit score but rather the value of the asset. While these loans may be considered a higher risk, they often provide a quick cash injection that would allow you to quickly close on a great deal.
How To Buy Rental Properties With Little Or No Money Down
There are a few ways to preserve your capital and buy a rental property with little to no money down. You could leverage seller or owner financing that is often more flexible in terms of interest rates loan. and a down payment than traditional financing.
Another option is to Structure a “subject to” deal or “sub to.” This still structure is where the seller keeps the existing financing in place but turns over the deed to the property you, as the buyer, then begin making payments on their behalf. This method frees you up from having to go through traditional financing, down payments, or credit checks.
You can also assume a mortgage or structure and mortgage takeover where you will assume responsibility for the remainder of the homeowner’s loan. In turn, they will sign over the deed. in some cases, the homeowner will also request a down payment, but it’s all in how you negotiate the deal.
Partnering With A Top-Tier Property Manager
If this is your first rental property investment and it’s in your local area, there’s a strong chance that you’ll be heavily involved in the property management process, especially in the beginning. However, when it comes time to expand your portfolio, or you simply want to take the day-to-day responsibilities off of your plate, you need a reliable and experienced property manager in your corner.
This person or company will be deeply involved in the daily operations of your rental property, and they’ll see things that you can’t. A good property manager will handle all of the billing and paperwork, the tenant application process, background checks, vacancy marketing, and any other tenant matters on your behalf.
Now That You Have The Basics Of How To Buy Rental Property Let’s Get Started!
Teifke Real Estate is Texas’ premier brokerage and property management firm. We have every tool and team member you need to start or perfect your real estate portfolio. Contact our team today to learn more about how we can support you every step of the way.
Frequently Asked Questions About How To Buy Rental Property
Below are some of the most frequently asked questions about buying rental property.
This question is a bit of a misnomer as it really depends on the type of financing you can produce. If you’re pursuing a seller-finance deal, you will need little to no money at all. However, if you’re paying cash outright for a distressed property that you need to rehab, this number ranges from a few thousand dollars to six figures.
The 70% rule helps Real Estate Investors determine the most amount of money they can pay the seller for the property. This usually amounts to 70% of the property’s value to leave room for profitability on the other end.
If more significant improvements are required or if you’re wholesaling the property, the amount paid to the seller must be negotiated down for it to still be a great deal.
Owning rental property can come with a few disadvantages, especially if you’re not set up with a sustainable long-term strategy. The first is the difficulty of liquidating the asset, as it can take time to sell an occupied property, and the second is the cost of upkeep.
The 50% rule refers to the estimated operating costs of a rental property. Half of whatever is charged for rent should be allocated to cover expenses such as maintenance, property management, vacancy marketing, insurance, and repairs.
Yes, the right deal can absolutely be highly profitable. A rental property is one of the most reliable and Timeless strategies for generating passive income. You not only purchase an appreciating asset that you can later sell, but that asset also pays out thousands of dollars a month.
