Buying an investment property is a great way to earn extra income and build long-term wealth. However, there are many considerations that go into buying your first investment property, especially in the current real estate market.
Because investment properties can be a risky endeavor, it’s important to consider all of your options and educate yourself on everything from tenant laws to home maintenance. To that end, 15 Forbes Biz Council members with experience in real estate gave their best tips for buying your first investment property.
1. Do Your Own Research
The advice I would give to someone looking for their first investment property is to never listen to the numbers the brokers have given you. Do your own due diligence. Find out the numbers yourself and do the math yourself. Due diligence is your get-out-of-jail-free card, so use every moment to turn every stone on the property. If something gets missed in the due diligence period, it is your fault. – Aviva Sonenreich, Sonenreich & Co.
2. Look For Extra Bedrooms
Buy as many bedrooms as you possibly can in a single two, three or four unit building. If you live in one unit while renting the other three, you can qualify for a low down payment and low-interest fixed financing. The increase in rents over time of those larger units with more bedrooms will make the mortgage payment look very small in just a few short years. Wish I would have done this as my first deal! – Daniel Breslin, Diamond Equity Investments
3. Search Outside The U.S.
See across the borders, as vacation rentals properties in countries that offer you juridic certainty and warrantied investment returns like Mexico. There are plenty of cities that provide that like Tulum in Riviera Maya. – Jesús Morales, jemmoma
4. Assemble A Team
When considering a first investment property, be sure to have a team of advisors and contractors at the ready. They can effectively support your real estate goals and answer questions on sustainable market rents, rent-ready repairs, after-repair value (ARV) and also review restrictions, for example, short-term lease allowable, hold time before renting, etc. A real estate professional can save you both money and headaches over the short and long term. – Sheryl Houck, eXp Realty LLC
5. Leverage Auction Websites
Consider looking at auction sites. We anticipate seeing online sites rise as a way for buyers and investors to discover and research properties more easily. For investors looking at the burgeoning single-family residential market, online auctions allow them to bid remotely, reduce travel costs and expand options with virtual access to properties nationwide. – Miriam Moore, ServiceLink
6. Educate Yourself
Real estate investing is not passive. Get educated, ask a lot of questions and don’t rely on a single source for answers. Run all your own numbers and proformas from scratch, rather than relying on anyone else’s, and include taxes, maintenance and all fees and carrying costs. There are investment associations in every metropolitan area as well as many online resources. – Robert Jafek, Boomerang Capital Partners
7. Know Your Goals
Remind yourself often of why you’re pursuing real estate investing. What investment goals are you working towards? Make sure the property and investment terms meet your objectives. Talk to other people who have done it and be realistic about the time commitment of managing the property. – Chuck Hattemer, Poplar Homes (formerly Onerent)
8. Start Locally
Start local. Every market has investment opportunities. There is no such thing as a “starter investment market.” Your local market might not be good for rentals, but great for flipping and vice versa. Find out what is working locally and find a professional to help. Be involved in the process! You will gain experience which is very important in real estate. – Trang Dunlap, Trang Dunlap Group
9. Keep It Simple
Your first property should be an easy one. Buying a property for a realistic price with conservative leverage and some cash flow is what you want. If it’s a bargain, there’s a reason. The stories about first time-investors getting in over their heads are real. Recognize that you probably have a lot to learn and you want some training wheels for your first ride. – David Friedman, Knox Financial
10. Plan For The Future
Each investment property should add value to your big picture strategy and get you closer to your end goal. One key aspect to consider is how to weather any potential recession since you will only recognize an actual loss if/when you are forced to sell property. Purchasing in an area’s median price range can be a safe bet, and a quick search can help you determine average rent to cover expenses. – Jennifer Anderson, Anderson Coastal Group
11. Know There Are No Perfect Deals
Determine your investment criteria, do your due diligence and then pull the trigger. There are no perfect deals, and what is right (or wrong) for a different investor shouldn’t matter to you. You don’t need a home run on your first deal and if you never get in the market, you won’t have an opportunity to learn. Be bold and fearless, and take that first big step! – Megan Micco, Compass
12. Consider Target ROI
When purchasing your first rental property, don’t be tempted to buy a property that doesn’t have cash flow. As exciting as our current market is, with properties appreciating at a breakneck pace, don’t ignore the fundamentals of real estate investing. When rental property hunting, look for a target ROI of 15% or more and target rents should equal at least 1% of the purchase price. – Tara Hotchkis, Compass
13. ‘Start Where You Are’
The single most important piece of advice I was ever given, and still give today, is “Start where you are.” Your (ultimate) ambition might be to own a downtown luxury hotel, but if you can buy, fix and rent a single-family house, then do that first. Start where you are and grow into bigger projects. Understand what it takes to manage a property before hiring a property manager, borrow small to go big. – Sherman Ragland, The Realinvestors®️ Academy, LLC
14. Consider Your Cash Flow
The best advice I ever got was, “If the market were to tank tomorrow and you are still happy you own the property, then you have the right property.” How you do this is by making sure that the investment has a good positive cash flow. This way you are still paying down principle, still have cash flow, and still getting the tax benefits of the property. Therefore, you don’t mind a price decrease. – Jimmy Rex, Rex Real Estate Team
15. Carefully Choose Your Lender
If you need to borrow from a private money lender, it’s best to start a relationship before you get to a purchase contract. If you can, use family and friends’ money for your first deal. It might cost you less and will help you get some experience that will help you secure better terms for your next deal. Experience is the FICO score of investment property financing. – Robert Greenberg, Patch of Land