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How to Buy Your First Investment Property


Buying a multi-family investment property - like an apartment, condo complex, or duplex - is a great way to generate long-term passive income. You essentially buy a property or properties, rent them out, and use the rental income to pay mortgage, taxes, insurance, and upkeep. If you decide to sell at some point, you'll cash in on the equity that was built in the property during the rental period or even use the equity to buy additional rentals. Of course, it's important to know what you're getting into to ensure you set appropriate rates and manage other aspects of financing and running the property. My Rent Rates can be a great resource for this purpose.

Getting Started

If it's your first foray into investment real estate, you'll want to do some research in advance of looking at property. In terms of financing, you'll need to ensure you have solid credit and, according to the Consumer Financial Protection Bureau, that your debt-to-income ratio is acceptable to potential lenders. A mortgage company may also want to see evidence that you have the ability to pay the mortgage, even if the property goes unrented for any period of time. Understanding vacancy rates and average rent rates in your areas of investment will help you gauge these numbers. There are numerous loan products available, and the rates will vary based not only on your credit, but on whether you're a first-time property buyer, and if you plan to live on-site or off-site.

Types of Rental Properties

While some people buy single-family houses as rental properties, apartments, and duplexes with two to four units can be more profitable, especially if you're a first-time homebuyer and you decide to live in one of the units yourself as your primary residence. Interest rates are always higher for rental property than primary homeownership, and if you combine incentives for first-timers and live on-site, you'll qualify for the best rates. You may also be able to save on hiring a property manager if you're physically present, and you can use rental income to not only pay the full mortgage but to operate the property and keep it in good repair.

Managing Rental Properties

All rental properties are different and require differing degrees of upkeep and management. General management functions include advertising vacancies, accepting tenant applications, running credit and criminal background checks, completing contracts, and collecting rent. It also means maintaining properties and making repairs and upgrades as necessary. According to the American Apartment Owners Association, whoever manages the property also has to field complaints and handle evictions and lease-ends. You may opt to do this yourself, hire a property management company, or take a mid-way approach and have a handyman and office manager on-site. You'll want to think about this portion of ownership when determining your budget and rental rates.

Finding the Right Fit

When you start looking at rental properties for sale, consider the age and condition - older properties may be purchased for less than their newer counterparts, but require more upkeep and repair. You'll also want to explore rental and vacancy rates to determine how much you can reasonably charge, and how often a property is likely to be vacant. In addition, think about the benefits of buying a property that is home to existing long-term, reliable tenants. A qualified real estate professional can help you determine from the current owner what typical rental rates and costs and expenditures look like. You might also be able to use any existing lease agreements as proof of income when you apply for a loan.

There are numerous pros and cons to investment property ownership. Doing your homework in advance will help you determine if it's a financially viable option for you. For more best practices on multi-family property ownership and management, visit My Rent Rates.

By Natalie Jones

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