How to Buy Your First Turnkey Rental Property | Investing for Beginners
How to get started buying your first rental property when you don’t know where to start? It seems a little daunting when you are getting started with rental property.
This article will discuss tips on how to buy your first rental property.
1. You have to know your goal
You have to know your goal because if you don’t you will just be running in a loop.
So, ask yourself what you really want with buying your rental property?
Do you want the rental property to achieve financial freedom?
Do you want to just buy a rental property for the sake of having an “investment”?
Do you want to add cash flow to your portfolio?
It is important that you must know what you want so that you will have a road map to success. When you have a goal, you will be able to know where you are going.
2. You need to focus on ROI (Return on Investment)
Before you start looking for rental property, hiring a contractor, or finding a property management company, you need to focus on ROI.
What neighborhoods would you what to be?
Where are you going to buy your rental property where it will provide you a better or highest return on investment?
For instance, you can buy a rental property in a certain area in California for $400,000 for three-bedroom and one bathroom, but when you go to a Memphis, TN, it will cost you half of $400,000 for exactly the same kind of property.
You must know your return on investment. What is the number that you will generate from cashflow? Usually, you’ll go for 9% to 12% above the net return on investment.
Some people who you only buy rental property without thinking about return on investment. They just think that if they buy a $350,000 house it will already provide them a good cashflow. Remember when you buy a rental property in Memphis, TN for less than $120,000 it would give you a good cash flow (depending on the neighborhood). So, pay attention to ROI.
3. You have to build a team
If you are going solo in buying rental property without leaning to an agent, a developer or property manager it would be more difficult and the probability of you failing will be greater compared when you lean to people who know what they are doing.
Remember when you are starting with a rental property, there are people who have been doing it before you and they have experience and knowledge more than you do with rental properties. So, building a team is important.
4. You Need Money / Financing
In the process of buying a rental property, you need money or financing to buy one.
You can buy the property if you have cash on hand. If you have savings, then you may use the money as a down payment to that property.
You can work with local banks.
You can work with private money lenders.
You can buy a property for cash and pull that out and refinance it.
You can borrow from your 401K
You can fund your down payment through a credit card.
There are many ways where you can get your funding.
5. Start the process
Start checking out the rental properties for sale. Review the rental properties for sale. Do your research and confirm the rents, taxes, estimated repairs, etc. to avoid regrets. Be wise and be patient.
6. Do the paperwork
Once you've found the rental property that fits your criterion, put it under contract. At this point sign the required agreements and addendum. At this point, you'll be sending your earnest money check.
It is important that you order an inspection as soon as the paperwork. when the rehab is still under construction then you have to wait.
Once the inspection is done, you can start negotiating the purchase price based on the inspection report.
Once done you can order a property appraisal. If all things go in the right track.
At this point, you need to secure your tenant. But if it has no tenant yet you must secure a tenant. Turnkey providers usually complete this process for you.
Then you can gather the remaining underwriting.
7. Closing on your own turnkey property
Now you have your own turnkey rental. Make sure you review all the final documents