Patrick Iturra, Asset Manager at Estate Investments Group January, 2023
Are you looking to build your first passive income source?
Well, what can be better than buying your first rental income property? This is the right blog if you want to buy one in 2023.
Over the past 24+ years, I have been a strategic investment advisor; I have helped people generate long-term wealth for themselves.
In the following section, I will provide key points for buying the best rental property and generating your passive income today. Here I will mention the key points to consider when buying your first rental property. To complete the process, read through the article to the end.
Key Points to buy your first rental property
The first thing you need to consider is the property’s location. In a locality with a growing population, employment opportunities can be the first factor. Considering the low crime rate, public transportation facilities can add to the list of ideal tenants’ requirements.
As per your interests, you should select a City/location with low property taxes, good district schools, and other amenities such as restaurants, coffee shops, shopping malls, and parks.
You can do all this research online, as many websites provide complete information about real estate and buying and rental prices.
2. Finance your rental property
First of all, you have to plan your purchase. Can you afford to buy the property in cash, or do you want any financing?
The people looking to buy their real estate on full payment can buy the property immediately, but if you want to finance, you have to do some extra work here. There are different metrics that a lender considers while buying a rental property.
For most rental property loans, the lenders consider the credit score, down payment, debt-to-income ratio, etc. The lender might be concerned about how you could utilize the loan to repay the amount with the agreed interest rate.
Lenders consider the following:
- Credit Score: To get a loan for your rental property, you need to have the least credit score of 630, but to get better interest rates, you need at least a 740+ credit score.
- Down Payment: Many people think you can buy a rental property for the same 1-3% down payment for a primary residence home. But, this is not the case; here, you need to pay 10-15% of the total price as a down payment.
- DTI-ratio: DTI stands for Debt to Income ratio; here, the lenders calculate how much of your income would go towards repayment of your loan. For an idea, lenders need to allow up to 3/4th of your total rental income from your property.
- Cash in hand: Another thing that the lenders consider is the amount of cash you have in hand, like the idea that you must have the money to pay 3-6 months of mortgage payments, taxes, or any other potential expenses for the property. The cash in hand acts as insurance for the lender to assess that you can afford to pay the loan.
3. Rental Income Estimate
In the next step, you have to estimate the rental income you will get from the rental property. Here, you must consider both the monthly mortgage payment and the operating expenses for your property. When you deduct both of these from your monthly rent, you will get your rental income estimate. For example, if you have a monthly rent of $2500, the mortgage is $250/month, and the operating expense is $500, then your total income would be Rental income – mortgage payments – operating expense.
In this case, it would be $2500 – $250 – $500 = $1,750.
Keep in mind that there might be taxes that you would have to pay based on your city or federal guidelines. For an idea, keep your operational cost and mortgage payment less than 45% of your rent.
4. Return on investment:
The next thing that you need to consider is the actual return on your investment. In rental properties, you can make money via two modes, i.e., rent or flip the property in the long term.
If you have bought the property on a mortgage, then you keep the mortgage running along with the rent because it will keep the loan going, and you will build credit. Also, it will give the property more time to appreciate, and once it has appreciated enough, you can sell the property to make a profit.
5. Do prior risk assessment:
A rental property will generate long-term wealth in the name of passive income. It is a physical asset that provides good value to its investors in the long run and includes tax relaxation in many cases. Also, once the real estate value grows, you can flip it for more profit.
But, there are some risks associated here as well, such as high maintenance costs, upcoming recession, if the tenants move out you have to pay for the expenses, or real estate is not a liquid asset that can be flipped easily.
Make a move: Buy Your First Rental Real Estate Property Today.
For the past 20 years, I have been working as a strategic investment advisor to my clients, and I have helped them to generate long-term wealth along with passive income.
I am here to help you to achieve the same; I will work with you as a strategic investment advisor to help you pick the right real estate property where you can put your money to generate passive income and build wealth in the long run.
I will help you with the research to identify the property, calculate the risks and return on investment, and provide a monthly return estimate. Many people make a mistake and regret buying their rental property, which is where I will help you make the best returns on your investment.
You can contact me here if you are interested in generating passive income.
I am here to help you!
Business development is the ideas, initiatives, and activities that help improve a business. My experience results in your business’s increased revenue, expansion, and profitability by building strategic partnerships and making strategic business decisions.
I don’t sell houses. I grow your Assets. Patrick Iturra, Asset Manager at Estate Investments Group