Don’t Delay: Here’s How to Prepare for a Rental Property Business Today￼
Even though young adults are faced with low employment opportunities, high living expenses, and skyrocketing home prices, they still yearn to become homeowners. To achieve this feat, many turn to real estate investments to get better leverage.
Of course, this in itself is a daunting task. To make your way into the real estate market, especially if you are a young adult from a middle-class family, here are some tips that you might want to consider.
1. Save up for a significant down payment
Most buyers are only able to secure loans with small down payments. For FHA loans, a down payment of 3.5% is needed at a minimum for a borrower to be considered eligible.
However, FHA multifamily mortgages offer a significant financial benefit to millennials who want to buy their first real estate property — they require a minimal down payment and can be used to purchase a duplex, triplex, or four-plex. This means that while you’re living in one unit, you can rent out the other units to generate additional income.
2. Get pre-approved for a mortgage with an experienced lender
Once you start saving for your down payment, you want to make sure that you are pre-approved by a reputable lender. Getting pre-approved means that you have a realistic idea of how much you can borrow depending on your income and credit score.
This is different from getting pre-qualified because the latter only represents the amount you can spend. Pre-approval, on the other hand, involves checking your debt-to-income ratio and income documentation.
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3. Start building your credit score early on
You can’t buy a real estate property if you don’t have a strong credit score, which is why you need to build a good credit score as early as possible. You can do this by paying your bills on time and limiting the amount of credit you use every month.
Of course, you need to make sure that you are paying non-credit-related bills on time; otherwise, this will affect your credit score. You can keep track of your credit score with free online tools and ask your financial institutions to send you an updated credit report every month.
4. Check for properties with good rental potential
Before making a purchase, consider if the property can generate extra income or not. You should also consider other factors such as the condition of the property, where it is located, and how big it is. Otherwise, you might end up with a real estate property that is too costly to maintain.
So, while you’re out looking for properties, consider houses that are close to offices, shops, and other amenities. These houses will be easier to rent out because they are in convenient locations. Also consider the number of bedrooms and bathrooms as well as age, condition, and size.
5. Look for properties that are within your budget
To avoid overspending, you need to have a budget in mind. This means that you should determine your maximum purchase price so that you don’t go beyond your means. This way, you can avoid going into debt before you even get your business up and running.
You also need to factor the cost of renovations into your budget. You might be able to purchase a fixer-upper at a low price, but you might end up spending more once you factor in repair costs.
6. Be realistic when it comes to your timeline
It might be easy to find properties that you like, but it is also important to consider your timeline. If you are not able to secure a loan soon, then you might need to look for other properties that are more affordable. You also want to factor in the time it will take you to renovate the property before you can rent it out.
By doing so, you will have a realistic idea of your timeline and you can factor in any possible delays. You also want to consider your income and life situation when coming up with your timeline.
7. Set up an LLC for your new business
If you want to maintain privacy, then setting up an LLC is the best option. However, if you want to be proactive by sharing your story, then you might opt for another type of business entity.
The good news is that you can do most of the paperwork for your LLC online. If you want to be proactive, then you can open a bank account for your new business so you don’t have to carry all the money around in your personal accounts.
Follow these tips and you’ll be well on your way to owning your first rental property in no time. Of course, it may be easier said than done, but that’s part of the process. Just remember that you can do it if you put your mind to it and work hard for it.