How To Select Your First Rental Property

Owning and renting real estate has long been considered one of the best ways to build personal wealth over time. Real estate investors with portfolios of dozens or even hundreds of rental properties can realize enormous annual profits while also building up wealth in the equity of their properties. In order to reach this level of success in real estate, however, every investor has had to take the initial step of buying his or her first rental property. In many ways, the first property in a rental portfolio is the most important, as its success or failure will often determine whether or not an investor decides to commit more deeply to real estate. Here are a few tips for selecting your first rental property to help ensure that it is a success.

Determine Your Parameters  

The first step in selecting a property is to determine a few of the basic aspects of what you are looking for. Decide, for example, what area you want to rent in. In most cities of any size, neighborhoods near colleges or close to downtown business centers will offer decently high rental incomes. Also, determine what kind of property you want to purchase. For most investors, the answer to this will be a single-family home. Some, however, may be attracted by the possibilities of a duplex property that can command multiple rental incomes at any one time. These properties also have the advantage of bringing in at least some income even if one tenant moves out.

Another important factor to determine is your budget. Many first-time investors believe that the more they spend, the more income they will make. While this is true to some extent, it is possible to turn a profit on lower-cost properties if they are in the right area and appeal to the right tenants. Determine what amount of money you are comfortable spending or borrowing to invest in your first property and stick at least fairly close to that number as you search for properties.

Build A List Of Suitable Properties 

Once you have decided what you are looking for in a property, it is time to start scouring your local area for homes that meet your criteria. Look in the neighborhoods that you have determined to be good areas to own a rental property for homes that are close to your price range. Take into account the size, condition and age of the property, as well as any other factors that may impact how much you can reasonably charge in rent for it. Online listings can be invaluable in this stage of the search, as they will typically list square footage, bedrooms, bathrooms and pertinent utility information, as well as show pictures of the inside of the home that you can use to determine its general condition.

Though the number of properties you find will vary based on availability in your market and the criteria you set, you should aim to find at least 10 properties that are worth further investigation. Even if you think you’ve been lucky enough to find the perfect property on your first or second try, continue to find others, as a larger list of candidates will give you more options and make you more likely to find a property that meets your criteria.

Source: forbes.com