20 May One Of The Easiest Ways To Acquire Your First Rental Property
Finding a good rental property to invest in can be very difficult in a city with high real estate prices. Having high mortgage payments is a challenge for a new landlord because, if you can’t charge enough rent to cover all of your expenses, the property can soon become a drain on your bank account.
If you currently own your own house, one of the easiest ways I’ve found to acquire your first rental property is to buy a new house and rent out the place you’re in.
Here are some of the benefits of this plan:
- The down-payment will be less. Banks generally want to see about a 25% down payment to purchase a rental property. Since you are now buying a new principal residence, the down payment can be significantly less (generally 5%-10%).
- You know exactly what the mortgage payments will be. You’re already paying them and, as an added bonus, they will likely be very manageable if you’ve been living there for several years.
- You’ll know exactly what you need to charge in rent every month to cover expenses. Of course there are a few other factors that will help you determine what the rent should be but at the very least it should be able to cover your basic expenses. These are generally the above mentioned mortgage payment as well as property taxes and house insurance. It will be fantastic if there is some left over every month to put aside for repairs and maintenance.
- No need for a house inspection as you already know everything about the place. You now just need to clean and get ready for tenants.
- You probably have a nice place! So, you’ll be able to charge higher rent and attract better tenants.
This plan worked well for us to get started in our rental property business but it might not appeal to everyone…
Here are some disadvantages that might have come to mind (followed by my good reasons to potentially do it anyways!):
- You have to move! Yes, this is the big one – to leave your house and move to another. This might be bothersome for many reasons…you love your house and are too nostalgic to leave…it would take you completely out of your comfort zone to do something so drastic…it’s a very big job and more than you’d like to take on etc. etc. (Yes, all true but in the end it just depends what you really want. If your goal is to substantially increase your net worth with a rental property and financially it looks like the better alternative to buying a property to rent out – just keep the idea in your mind for a while. It may start to take root:))
- Moving is expensive. (True but also a relatively minor expense in the grand scheme of things.)
- If you’re putting 5% down on your next place, you will need to take out mortgage insurance which is costly. (I list this as a disadvantage but it is the reality for most people and really the reason for this whole plan. You can usually add the insurance on to your mortgage and it still makes a huge difference when compared with making a 25% down payment.)
In our case, we followed this plan and then stayed in our next house for 2 years. We did it all again to get our second rental property.
If you’re just starting out in the rental property business, I hope this plan will work well for you too.
To your success!
Are you interested in buying and managing your first rental property but don’t know where to begin? Check out my eBook on Amazon which brings all the information you will need to one place.
My Rental Property Coach