Rental Property Investing 101 (Getting Started In Just 8 Steps!)

Finding a rental property doesn’t have to be complicated. Whether you’re looking for out-of-state properties or somewhere closer, there are 8 steps that you need to do. And I’m here to break it down for you.

Determine your location

The first thing you need to do is to find a good location. Find an area with good job growth, good population growth, and low crime rates. Check the demographics and make sure there are things to do for people who will live there. City-data is a good source of that information.

If you’re looking for out-of-state properties, one tip will be to choose a location that is only 1 flight away from where you live. If the property is all the way across the country and needs multiple flights for you to get there, by the time you get to the location, it’ll be the end of the day already.

Determine your type of property

Figure out what type of property you want to buy. Are you looking for a single family, duplex, fourplex, or commercial? Do you prefer a class A, B, C, or D neighborhood?

Narrow down your buying criteria and investor profile, so you know what you’re looking for.

Find a property management team

If you plan to make your rental property a passive business and don’t want to be hands on, then you’ll need your own property manager. Look for one by checking out the available property management companies out there.

Ask them questions about their processes for getting new tenants and doing evictions. What are their rates? And are there any hidden fees?

How do they handle requests for repairs and other stuff?

These are some of the things you should know before choosing the team you will work with.

Find a great agent

You want to make sure you have a source of good deal flow. Don’t just get any agent throwing you listings he got from an MLS.

Get someone with insider knowledge on off-market deals. One way to find a good agent is to go to BiggerPockets.com and ask for great locations in a particular city. From that location, call the agents working that area until you find one that you want to work with.

Secure financing with a lender

Before you go about making offers, get a pre-approval letter from your lender. This way you won’t end up dealing with a lender not approving your loan and you needing to back out of a deal.

Also, being able to show that you have financial backing makes you look more attractive to the sellers.

Start the due diligence process

Once you’ve found a property that you want to buy, it’s time to send out the inspectors. Make sure everything is accounted for. And if there’s a problem, ask the seller for a reduction on the price or cash after closing to do the repairs.

Doing your due diligence will help you avoid buying something that could end up being a big problem on your hands. This is also the time for you to get your homeowner’s insurance in line.

By the way, did you know that 3 days after you sign your contract, you will have to put in an escrow account your earnest money deposit? This is 3% of the purchase price. If you cancel the contract, you will forfeit this money if you have no contingencies.

But if you close on the deal, the 3% will count towards the 20% down payment on the property.

Close on the property

Once everything is done and in order, you will sign all the documents and wire money to escrow. Then you or your property manager can pick up the keys so that your team can start getting tenants in place.

If there are existing tenants, then you should start collecting the rent. But if the previous owner has already collected all the rent, then they should credit the prorated amount to you at closing.

Do the follow-ups

Having your own team manage your property doesn’t mean you shouldn’t check up on them. Follow up with the property management company so that you’ll know if they’re running your property as you expected.

Are they doing what they said they would do? Is the property renting out for the amount they said they could rent it out for?

Conclusion

Well, that’s it. Just follow these 8 steps to get you started buying your first rental property. Then you’ll be on your way towards achieving your passive income goals.