Buying Your First Investment Property 8 Things You Need to Know

Buying your first investment property can seem daunting. However, getting started in real estate investing can be a great way to move forward in your path to financial freedom.

Real estate investing can provide its owners with anything between a little extra cash flow, a safety cushion of equity, or generational wealth. But, of course, it all depends on your goals, how you structure them, and what you put into them.

Before investing in a rental property – it is essential to start from sound financial footing. There is a high transaction cost to buying and selling real estate. If you are not in a good financial position, you may be tempted to sell your investment in a year or two.

Single-family vs. Multi-family When deciding on your investment strategy for your first property, you will have to choose between buying a single-family residence (SFR) or a multi-family building.

Cashflow Focused Buy and Hold- Buying a property that is rent ready or near rent ready with a focus on obtaining a good cash flow. BRRRR Method- The BRRRR Method stands for Buy, Rehab, Rent, Refinance, Repeat. It is a way to recycle your principal investment by causing forced appreciation and refinancing your initial principal out of the property.

Loans Getting a loan on an investment property can be a bit different than a mortgage on your primary residence.

Conforming Loans: Mortgages sold to Fannie and Freddie are in this category. These are the loans that most big banks offer. Portfolio Lenders: Usually, community banks and credit unions offer loans for commercial properties such as rental properties that should not be packaged and sold off as a conforming loan. Hard money loans: Hard money loans do have a place in the world of investing but are not advisable for first-time investors.

Building your Team Please do not go out to the world and ask people if they will be on your investing team. Relationships with the people you will work with for investing in real estate should be more organic than this.

Acquisitions Note I did not say real estate agent here. When finding a primary residence, your search may begin and end with a real estate agent. However, when looking for an investment property, more options are to consider.

Property Manager When purchasing your first investment property, deciding whether to hire a property manager or self-manage is a significant decision.

Accountant There are tax consequences to owning an investment property. However, many of these consequences can be favorable for the investor. That is why it is a good idea to have an accountant that understands real estate investing and can help you project, plan for, and position yourself to take maximum advantage of the tax consequences of your investments.

Tracking Income and Expenses To report taxes at the end of the year, you need accurate income and expense records. These records will also be handy for comparing property performance to your projections and allow you to make adjustments to your investing strategy.

Real estate investing can be an excellent option for many people. However, going from zero investment properties to one is a daunting task. Working through it methodically, creating a model, and a team can make this process more approachable.

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