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Our Rookie Tips for Buying Your First Rental Home + How We Got Started
Did you know that Greg and I have rental properties?
Among others, this is one thing I am so blessed to have gotten the opportunity to be a part of. I know this topic might not be interesting to everyone but it has played a huge role in our lives and it’s worth talking about.
While we are far from experts and are still learning a great deal ourselves, we do have some tips for someone who is thinking about buying their first rental (or their first home). Owning real estate and especially rentals is an incredibly lucrative business that everyone should consider no matter their age or income.
How we got started in real estate & rental properties
We were convinced to go to the Radisson Minneapolis one random Friday night for a ‘real-estate investing 101’ session after coming across an Instagram Ad. Of course, when we got there, we realized we had just committed our evening to a sales pitch on a teaching course on real estate investment properties, buying, buy & hold, flips, and rentals.
Given our situation at the time, with room to take on new opportunities in both of our career paths (Greg on his way out of the NBA and I just graduating college), we loved the idea of a side-gig in real estate.
Greg committed to going to their advanced learning course to get all the basics to buying real estate, the secret equations to a flip, the legal stuff to watch out for, tips to being your own realtor or working with one, etc… I was unable to go because of school but he was overall impressed with the content. Which is why we decided to take the next step in their educational course. This included another local training and an out-of-state workshop where they sell it with “‘you get to meet Christina and Tarek from Flip or Flop.”
We totally knew we were a “hot lead” moving down their sales funnel, getting swooned with the possibilities of what owning real estate can get you. But we didn’t care that this all might be a little bit of smoke in mirrors. The content that we were learning was real, valuable stuff. For us, we had the money ready to invest- we just wanted to make sure we had the knowledge, confidence, and whereabouts to do so.
Long story short, we did meet Christina and Tarek. We also met Andy and Candice from Old Home Love. Both couples were incredibly friendly and down to earth. They shared their personal journey’s to real estate badasses and what ‘TV fame’ is like.
After that trip, together we had acquired nearly 200 hours of training and education on real estate investing. Contracts, legal, ways to find homes, flip evaluations, working with contractors…anything you can think of, we probably had notes on it.
That leads me to my first point: Get educated before you take your first step. Ignorance is why people fail in this business.
You don’t have to go ALL-IN like we did. But at least take the time to pick the brain of someone who owns rentals.
In May of 2016, we purchased our first single-family rental property!
Following that, in June of 2016 with the help of our amazing realtor (a long-time family friend), we purchased our second investment property, a pre-MLS listing, a flip home. We actually came out on top here, amazingly enough, but decided to pump the brakes on flipping homes and focus more on rentals. I will share that story at a later date.
Now it’s 2018, and while we have recently slowed down due to a flooded market, in under 2 years we have tallied up 5 rental properties, that total to 11 units.
I am not going to lie and say that we started with nothing and “look at how amazing we have done”– we absolutely had a crutch given our financial freedom because of Greg’s career. But, it was still risky to pull money from investment accounts to make these purchases, and we needed the education we had to know what we were getting into. There is always risk involved.
Now to the Tips:
While we can’t give much advice on financing a rental or flip home, (we are just starting to look into financing our next property) we definitely have some tips to consider when you are getting into this business.
- Build a team of people you trust, if you decide to use a realtor, make sure it is a referral.
- Have your realtor set you up to get automated emails of new listings in your price range and desired area. You will get emails daily of properties that fit your criteria. We get two emails every morning 1) for single family homes in our price range 2) new multi-family properties in our desired area.
- Look, Look, Look, before you buy. Some deals you do need to act fast, but don’t make impulsive decisions here. There is ALWAYS another property, you will quickly forget about the ‘one that got away’.
- Get experience looking at A LOT of properties, the more you see the more you will begin to understand a homes health & true potential. And while you’re there, don’t be afraid to get dirty! Bring a flashlight, look good at the basement, lift a ceiling tile, poke that weird hole in the wall and see what’s going on. This is another reason to have a realtor you trust, they will be willing to invest their time with you if they know you are serious about buying in the end.
- If you are using financing, get pre-approved, so when you find the right place, you CAN move quick (of course once you’re sure it’s the right place.)
- Do your best to evaluate the repairs the property may need during the showing, and take that into account when you make an offer. If you think it needs something major, have your contractor (or the plumber, electrician, whatever type the work is) meet you at the property before you put the offer in and get a real number for what things are going to cost you.
- An inspection before making an offer is not always necessary. If the house is super old, or something doesn’t seem right make sure your offer is contingent on inspection. But, a few times we felt we couldn’t lose, so we put an offer in, and had an inspection AFTER the fact just so we knew what needed fixing. You have to be careful here, but the reason why you’d want to do this is: Assume the seller received 2 offers, one at 95k pending inspection and one at 85k no inspection, quick close. A lot of sellers would choose the lower offer to avoid all the mess an inspection might bring. Again be smart here if a deal looks ‘too good to be true’ it probably is, so get the inspection first.
- Expect something to go wrong. Maybe you don’t see major repairs during the showing, but budget for the unknown. If you plan on making this is a rental, you may have to make some changes to get things up to city code. Also, you will likely have to pay a small fee for a city rental license that will require an inspection.
- Let people know you are looking to buy an investment property! 8 of our units were acquired via word of mouth, where someone had personally reached out to see if we’d be interested in buying before they listed. The BEST way to buy is pre-MLS!!!
- When you are looking, don’t look at the design of the home. Remember- you are not living here! If you don’t like the cupboards, who cares- this is not your house to live in. (This was something that was hard for me to remember in the beginning).
- Okay so the house is in good shape, but how do you know if it’s the one? Or what to offer? A lot comes into account, and you need to be thinking about it all before you can make a decision:
- Are you financing the purchase or paying cash?
- What will annual taxes and insurance be?
- What is the renter paying for and/or are you covering any living expenses (electric, water, garbage, for example, are things that you may decide to include in rent, or you may say it is not included and they are responsible for paying this.)
- Will you have a property manager?
- What is the rental market analysis saying you can get for rent?
- What is the neighborhood of the home like? (This is less important, as people always need to rent homes, but make sure it is in an area you are comfortable with!)
- What are similar homes selling for in the area?
- Has it been a rental before?
- What needs to be done before it’s ready to be lived in?
- How motivated is the seller?
Once you get the place:
- Have a detailed lease and application process in place. You may even consider purchasing one online to make sure you have all of your bases covered.
- Keep an Excel Tally of what you think all of your costs will be so you get a realistic picture of your annual cash flow.
- Immediately after purchasing, do another detailed walk-through and take notes of what you need to do… and get started!
- Start building your team of go-to providers (find a plumber, electrician, HVAC, Handy-man that you love and let them know you are a landlord and will continue to use them!)
Here is an example of the first home we bought:
This was our first Rental Property, and the costs to get it Rent-Ready, we calculated a lot of these numbers before we purchased the property to make sure it was a good investment:
|Electric June/July before renters||+$800|
|Monthly Gross Rent||$950|
|Monthly Upkeep -Mortgage/Utilities||– $100|
|Monthly Net Rent||=$850|
|Yearly Net Income||$10,200|
|Property Taxes/Yearly Misc Expenses||-$1,500|
|Net Profit Annually||$8,700|
This is, of course, is a rough estimate on some of the numbers, because we didn’t know for sure at the time. As time goes on miscellaneous expenses come up, repairs will be needed just make sure you do your absolute best to get an idea of what that number might be on an annual basis based on the condition of the property. If you don’t know, ask someone else for their professional opinion.
I can’t promise that following these tips will lead you to a successful rental investment. But, they will definitely help aid you in that journey. A journey that I strongly suggest starting!
As always shoot me a message if you have any questions.
E & G
This Post Has 12 Comments
Will have to show my boyfriend this post. In the future he wants to get into purchasing rental properties! These tips are great! Thanks for sharing!
This was a good read! My husband and I have never purchased a house, but have been discussing the possibility of rental properties somewhere down the line. Bookmarking this for sure!
Thank you, these are relevant tips for buying a home too! Rentals are always a good idea if you find the right one 🙂
Thanks for the great tips. My father in law is big into rental property and he always suggests that my husband and I get into it ourselves. It’s scary as a younger couple to invest in something like that, but you’ve encouraged me and given practical advice. Thanks!
I always say, it never hurts to look! Glad I could help!
I love this post! Great tips! My husband and I have always been interested in purchasing a rental home and these tips are good to know!
Thank you!! Good luck. Keep looking & you will find a good match!
Loved this! I’ve always been interested in owning an investment property. I’ll have to keep this post saved for future reference. I appreciate all of the detail that went into it, thanks for sharing!
Thank you! Yes, you never know when the opportunity might present itself 😘
Awesome post . I’ll definitely keep this bookmarked
I love reading all your posts. Always so thoughtful, reflective and thorough. I appreciate all you do and am grateful for your time in doing these. Carry on!!! Can’t wait for more!
Hi Jill! Thanks so much for your kind words- happy to hear you are liking them- I appreciate you as a reader!!
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