My husband suggested that we should purchase rental properties as our retirement plan. I support this idea, but as with any type of planning, it takes a few personal sacrifices to make this happen, but we are doing our best to plan for the future. It is hard to know exactly how to get started. There are so many points to consider.
So how did we get started?
First, we set a budget. We needed to understand what our personal finances looked like and how much we have available to spend. The real estate market is so broad. We needed to know where we could get our foot in the door. How about you? Maybe you need to save some money for that first down payment. Maybe you want to sell some stuff you are no longer using to free up some cash. Look into investors and financing options. We have discovered that financing through a mortgage company and financing directly through our bank is very different. Through our bank we are able to receive a loan with only 10% down that will not have any PMI. Avoiding PMI can save you a lot of money. Know that your property may not start generating income immediately. We have to ensure we can cover the mortgage and repairs until it gets rented. Nobody wants their investment to leave their finances upside down.
Second, understand the market. We are shopping in an area that we believe is going to grow rapidly in the next few years. We look at real estate property daily. Take advantage of all the online resources. What has recently come on the market? What has sold? What did it sell for? How long was it on the market? What condition was it in? We also look at rentals regularly. How many rental homes are available? What are homes renting for? How long is it taking for homes to rent? Which types of homes seem to be the most popular? We are trying to get as much information about this as possible. Also, if you know of anyone who lives in the area ask them about the neighborhoods. I recently reached out to a friend of my family before putting an offer on a property. He told us to beware of water drainage issues in the area, and look for evidence of past flooding. That is great information to be aware of.
Third, do research and jump in. OK, there is so much more to real estate investment then these first two steps. There are books and books about it. But I know that we can learn a ton by doing it, making mistakes, and learning from them. I can’t even list all of the lessons from when we bought our first home. We definitely learned how much we need to keep set back for a repair budget on an older home. The people who bought it after us have a nice house with a new breaker box, new hot water heater, two new A/C’s, new retaining wall, new gutters, and new fence. Yup, we fixed it up nice for them, and came close to breaking even when we sold the house. We call the rest tuition 🙂 Now, when we look at homes we check the age of the A/C, hot water heater, look for drainage issues, and expect we are going to have to spend a few thousand dollars fixing something we did not anticipate. This is experience and murphy’s law people!
We have not sealed the deal on our first rental property. We have made an offer and are waiting to hear back. But we are jumping in. Doing our best to go through the details checking what the mortgage will be, what it will rent for, and how much we will spend fixing the place up. I have a list of inspectors and contractors to call and start pricing repairs during the option period. Now its time for prayer and patience. This isn’t prayer that the contract will go through, but that God will lead because he knows way more then we do!
Have you invested in rental property? What were your experiences buying your first property? Let me know in the comments!