Mistakes with first rental property
If you have never done anything for the first time you are going to make mistakes. Things are simply going to go over your head. It doesn’t matter if you go to school to get your masters or you read 100 books, you are going to make mistakes. The more you read the more you forget it some instances! Does this mean you don’t take action? No! No one is perfect and really the only mistake is not taking action. That’s where the saying “those who cant do, teach” comes from. Why learn if you don’t apply. You are just gathering pointless information for no reason. Is anyone ready to raise a kid? No! Have I raised a kid? No, but you get the point. When you are in the process you are learning on the fly. That is experience, put that on your resume. And If you notice things about parents that have multiple kids they usually shelter the hell out of the first one with every little thing and decision being made under a microscope and the other children the only thing that is cared about is big picture things. Same thing with rentals. I took real estate courses and read the books and watched the YouTube videos and still made mistakes. Luckily, I am still cash flow positive on my first property (really that’s all that matters) but I still didn’t maximize my loan and down payment as much as possible.
- Rent Income to Purchase Price
A good way to appraise a potential rental property is at least be able to earn 1% monthly rental income to the purchase price. Not 1% of your loan amount and do not compare the RIO of the down payment. My property is pulling in 1% of the loan amount and the ROI is 8%. I am cash flow positive, so I am happy about that. But if I could have gotten 1% of the purchase price of the home, I would be much a happier as unforeseen expenses come up with the house. I could invest the money back in the property to decrease the intertest amount which would increase my cashflow. It would have been better to have more options instead of just saving for expenses. 1% of purchase price is going to give you that leeway to make the mortgage payment, afford a property mgmt, save for CAPEX and still have a good amount to invest.
- Neighboring rental income
I should have seen what other rental properties were going for the area. I was bull on the area because a hospital was recently built, and they were investing $4B in the area but for rental income the area was not the greatest. The demand was there but the price I wanted was not. I think eventually it will get to that point but it might take a while. The area is not the best but it is coming around.
This is not that big of a mistake, but I wish I haggled more about the landscape of the house with the seller. If there isn’t that much demand they will spend a couple hundred to make the sale if its what’s holding the buyer back. This of course can backfire if it’s a hot property.
You’re going to make mistakes when you buy a property if its your residency or investment property but make sure you don’t make emotional purchases and think it through! Don’t be afraid to make mistakes!