How To Get Started With Rental Property Investing
Tips For Building A Successful Business Plan
Those that are new to the rental property investing world often comment on how overwhelming it is when you’re first starting out. Whether it’s the daunting task of determining a market, coming up with an investment strategy, or figuring out financing, there are a multitude of elements that lead up to a successful investment opportunity.
Rental property investing is a good niche for those that are looking for passive income opportunities. While acquiring a rental property might be a lot of work at first, the rewards are worth the initial effort and can generate passive income over long periods of time if done correctly.
So what makes a successful rental property business plan?
- Establishing a strong investor mindset and a goal plan
- Find financing opportunities
- Choosing the right market for you
Building a Strong Mindset and Having a Goal Plan
To spin off of our recent blog 5 Tips For New Real Estate Investors, a successful rental property business plan starts with a strong investor mindset. Having a confident attitude will help produce better results and help you achieve your goals more quickly and efficiently. We recommend investors to build their foundation following these steps first:
- Eliminate Fear: Being successful is doing more than you think you’re capable of doing.
- Believe in yourself: Attitude is everything. A negative attitude will almost always eliminate success.
- Be willing to take risks: There are no guarantees of the path to success. However, the rewards far out way the risk.
- Be strategic: Use your time efficiently. What gives you the best results?
Once you have achieved a strong investor mindset, it’s time to outline your vision and your goals. Many real estate investors fail in their endeavors because they don’t set realistic, systemized goals when building their business plan. Every investor must have a “why.” Are you looking to help supplement retirement? Are you seeking financial freedom? Are you searching for a passive income source so that you can spend more time with your family? Whatever your goals may be, it’s crucial to have a vision as a part of your business plan.
Find Financing Opportunities
Securing financing is often the biggest obstacle that real estate investors face. It can be intimidating to figure out what type of financing is best for your business plan, but there are a few key components that can make this process easier:
- Lower your LTV (Loan to Value)
- Do your due diligence—preparation is key
- Consider hard money lenders instead of big banks
Lower Your Loan to Value with a Hefty Down Payment
If you’re considering a traditional lender like a big bank, it’s recommended that you have a down payment ready when submitting your application. When choosing the traditional route, the typical down payment required is about 20% of your total purchase price. Providing a larger down payment can also lower your interest rate and lower fees.
Due Diligence: Make Sure You’re A Smart Investment
Many factors will determine whether or not you’re eligible for financing, but making sure that you’re a smart investment is the easiest to overcome. Building your credit score and having a secure business plan will increase your odds of being approved for various financing opportunities.
Don’t Be Afraid of Hard Money Lenders
If you’re faced with the challenge of not being able to come up with a sizable down payment, seeking out a hard money lender may be the right option for you. This can be a great short-term solution for people that are unable to obtain traditional financing, but can also come with higher interest and fees. If you’re going with a hard money lender, it’s important to sit down with a traditional lender first to know what kind of requirements you’ll need to meet 6-9 months down the road when you’ll need to re-finance. Be sure to explore all the options before deciding what financing strategy works best for your business plan.
Choosing the Right Market for You
Deciding where you would like to invest is a critical part of being a successful real estate investor. There are many aspects that people tend to miss when thinking about what market they’re interested in. Most people want to invest in their local area, but before doing so, it is also important to consider other outlying factors:
- Property management: being a landlord or hiring a team to do it for you
- Rental Price: how much can you charge tenants and still get a good ROI
- Analyze the local economy: new businesses and jobs keep rental markets flowing
Many investors aspiring to build a rental property business make the mistake of limiting themselves to the markets that they live in. While it might be convenient to acquire a property near you, thinking outside the box may open the door to better investments. Doing your due diligence by researching the cost for property management, what you can charge for rent, and the stability of the local economy could sway your decision to invest locally and seek other opportunities.
A successful rental property business plan relies on one thing: you!
Whether you are brand new to the real estate investing world or you’re an experienced investor looking to change your game plan, these tips will help get you started with a strong foundation for building a successful rental property business plan. It’s important to remember that it all starts with you, and your dreams for becoming an investor all begin with a plan.
The single greatest edge an investor can have is a long-term orientation. – Seth Klarman