Buying Your First Rental Property?

If you're thinking about buying your first rental property, you’re already ahead of most people.

Real estate investing is a rewarding venture over time, providing valuable lessons in problem-solving. It can—and should—feel intimidating, especially at first. Let's break down the process step-by-step.

I. Learn, Learn, Learn & Discern

Real estate isn't something to dive into without preparation.

Read articles, books, and listen to podcasts. Avoid scams and expensive courses from so-called “gurus.” Everything you need is free or affordable—no $10k course can teach you what your own research can't.

The best time to invest was 10 years ago, but before you make offers, clearly define your goals. Are you after monthly cash flow? Do you have the capacity to manage short or medium-term rentals? Or are you comfortable breaking even now, aiming for long-term appreciation? Clarifying your strategy separates investing from speculating.

II. Matters of Money

Understanding your finances—and financing—is critical.

Will you pay cash, use an FHA loan (203b or 203k), or utilize hard money lending followed by refinancing? Knowing when and why to use different financing options can significantly affect your success.

Don't overlook closing costs, renovations, maintenance expenses, taxes, insurance, and emergency cash reserves. Remember COVID-19? Nationwide eviction moratoriums showed how critical having a financial cushion can be.

III. Location (x3)

Location is crucial. The worst house in the best neighborhood has potential, while the best house in a declining area may never appreciate.

A cheap property in Oklahoma might cash-flow today, but will it appreciate over time?

Explore opportunities out-of-state, especially if your area isn't landlord-friendly, but first, study your own market. Identify neighborhoods with appreciation potential and note any rental ceilings (like townhome complexes).

Engage with local property managers, investor meet-ups, and experienced wholesalers. Look for steady job markets, strong rental demand, good schools, low crime rates, and desirable amenities like public transport and retail options.

IV. Excel with Excel

Start mastering spreadsheets to analyze properties effectively. Practice by evaluating random properties that fit your criteria using metrics like:

• Cap Rate: Annual net operating income divided by the property's cost.

• Cash-on-Cash Return: Annual pre-tax cash flow divided by your initial investment.

• ROI: Overall return relative to the property's total costs.

• Vacancy Rate: How long your property remains unrented. Understand the impact if it takes months to rent during slow seasons.

Thorough analysis helps ensure logical investing—not emotional decisions.

V. Be a Team Player

Real estate investing isn't a solo sport. Assemble a knowledgeable team, especially for your first property:

• Real Estate Agent: Experienced with investment properties.

• Lender: Familiar with investment financing.

• Property Manager: Knowledgeable about the local market, ideally owning rentals themselves.

• Attorney: For contract and lease reviews.

• Contractors: Reliable professionals for repairs. Use community recommendations, like Reddit, for trustworthy referrals.

If margins are tight, determine what you can handle yourself versus what professionals should tackle.

VI. Inspections

If you can't immediately identify issues like polybutylene plumbing, don’t skip inspections. Overlooking hidden problems—like plumbing, electrical, or structural—can quickly drain your investment. Quality inspections are worth every penny.

VII. Getting Rent Ready

If you haven’t already, now is the time to hire a property manager. Self-management can quickly become overwhelming—are you prepared to leave your day job to handle emergencies?

A professional manager guides your property's readiness, ensures regulatory compliance, and reduces stress.

Choosing self-management? That’s a whole separate journey—and topic—for another day.