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3 tips for getting started in rental properties

March 3, 2013

Last week I had a question from someone that ran across my blog. Below is the first part of his question.

starting

I am looking to get into buy-and-hold real estate investment. I am not sure how I should go about this.  I’ve been reading various books, but many books seem to have a get-rich-quick mentality or a get as much leverage as you can obtain and the sky-is-the-limit mentality.  Neither of these are options that I am interested in.

I have talked to several people that want to start investing in rental properties, but many are just a little gun shy. I was exactly the same way. I read so many books that they all started sounding the same. I was listening to radio shows, podcasts, books on tape, webinars, the works. I talked to everyone I knew that was already doing it. They made it sound so easy to get started.

During this time I also heard from many people who had never invested in Real Estate. You know these types that love to give advice on topics they know nothing about. This is dangerous. Don’t pay a lot of money for expensive courses and seminars for people that may or may not have real experience in RE.  Listen to those who have already been there. This is the whole point of seeking experienced advice.

 “The Final 30 Feet”

I read an article years ago about a concept called “The Final 30 Feet”. I don’t have a link to this article anymore, but the original idea came from a comedian. He said, only take advice from someone who has walked that final 30 feet from backstage to the front of a live audience.

So while I am not one of these landlords with 25 years of experience – I can say I have walked that final 30 feet. I feel I am unique in that I still have the perspective of just starting out fresh in my mind. I think it is the perfect time to give my 2 cents on starting out in rental property investing. So far what it’s worth, here are my tips:

  1. Buy close to home and self-manage your properties. The best way to learn the ins and outs of this business is to self-manage. And the best way to do this is to have properties close to your primary (within 20 miles). You will quickly learn if landlording is right for you. Be careful if your plan is to immediately hand over the keys to a Property Manager.  How do you even know if you have a good property manager if you have never managed yourself?
  2. Take your time. Keep your day job – don’t jump in with everything. Rental property investing is a great way to build wealth and I think it should be done over time while you keep your day job. This will give you more funds and make you look more attractive to lenders. There is no need to over leverage and build an empire right away. Only buy one that first year, pay more upfront, make sure it cash flows. Your first purchase does not have to be a homerun – a single is fine. You will have time to try and hit one over the fence later…       
  3. Know your numbers and have an exit plan. Without a doubt you need to understand rental rates, home values, repair estimates, cash flow, etc. Do your spreadsheets and run the numbers for multiple scenarios. Also be prepared for several options if things don’t work out. What is the worst that can happen and be willing to live with that? Flip it, wholesale it, live in it, etc…  If you had to firesale to “We buy ugly houses” the day after you purchased – would there be a loss and could you live with it? Once you totally understand this, it’s much easier to take the leap.

I could have written 10 Tips on How to Start out, or 20 ways to get started, but I narrowed it down to just 3 tips that I feel are a must. The rest is just the same old stuff that I am sure you have read before in the thousands of RE books. I feel these 3 are critical and most often overlooked in many of todays RE books.

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