It can be a fun experience to get your first Dakota County single-family rental property. But as is the case with all investments, there are certain risks involved. To ensure that your first investment property purchase in Dakota County is as fruitful as you hope it will be, there are a lot of aspects you must know before you purchase. For example, you’ll need the answers to questions like whom do you want to rent to? What type of rental property will you concentrate on? How will you finance your purchase? In what follows, we will discuss these concerns and other major features you’ll need to be aware of to make purchasing your first rental property a rewarding experience.
Define Your End Goal
When getting your first single-family rental home, one of the first actions you should take is to set clearly defined end goals. Before you proceed with your property search, you need to take some time to know what qualities you are searching for in your investment property. As an illustration, you might be seeking properties in a particular area with a specific number of bedrooms or minimum square footage. You may also target a certain renter demographic, like college students or retirees. Understanding the fundamentals allows you to refine your search criteria and locate potential properties faster.
Prepare Your Finances
Along with identifying what qualities you are looking for in a property, it is an excellent idea to prepare financially before getting an investment property. Industry experts recommend paying down personal debt and saving for a down payment before proceeding with your property search. Reduced personal debt can help you to qualify for more favorable loan rates, while nearly all mortgage loans for an investment property will require a 20% down payment. Arranging to finance in advance is another essential step, but be mindful of high-interest loans or mortgage products that seem too good to be true. By prequalifying with a trusted mortgage lender, you will be able to capture investment opportunities as they arise. By prioritizing financial readiness, you can more confidently buy that rental property when the time comes.
Crunch the Numbers
After taking these required preliminary steps, the search for the right property can start. One critical factor to keep in mind during your search is that you must run a series of numbers on each prospective property, such as your margins, operating expenses, and expected return. This is where several new investors make critical mistakes.
New investors need to remember to include all the expenses related to purchasing and preparing the rental property for lease, as well as ongoing property management, maintenance, and vacancy costs. Industry experts suggest a margin of 10% and a 6% return in your first year means you have a profitable investment.
You must always remember that an investment property is just that, an investment. Getting attached to a specific property or permitting your emotions to dictate your judgments is not an excellent idea. Also, the property you buy is not necessarily one you would ever live in yourself. Industry experts urge you to purchase low-cost properties in high-demand areas for your first investment. But avoid fixer-uppers unless you are a highly skilled home remodeling expert or know a good contractor who would finish the work at a lower going rate. Your first single-family rental property should be considered the first step toward a long and profitable investment career rather than the end goal. In this way, you can keep yourself on track and your investment properties in the black.
Design a Management Strategy
In conclusion, don’t forget that acquiring a rental property is just the first step. To guarantee your investment pays off, you need a proactive management strategy. This is when the help of a Dakota County property management company can be advantageous. As local market experts, property managers can help you determine off-market investment properties, analyze market conditions, set rental rates, and many more. As more experienced investors will agree, the right property management company is an effective partner for profitable rental property investing.
Originally Published on March 13, 2020
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