Real estate has historically been one of the most lucrative investments you can make, and the best part is anyone can join! There are many avenues you can choose when getting into the great real estate investing world from the popular home flipping, wholesaling, tax liens, and of course rental homes. Purchasing homes and renting them out to other people is a great way to bring in extra income and grow your wealth over time, even part-time. Where to start though? What are some basics? While there is loads of information on the web (BiggerPockets.com is my favorite) and great books, here are some 101 rules for helping you find your first rental home investment in our thriving Portland, Oregon.
1. What type of property should I buy?
-Here in the Portland area the most desired homes have 3 bedrooms and at-least 2 full bathrooms. 3Bed/2+Bath homes have the largest market, with the median income in Portland being $60k/year this puts them comfortably in that price range.
-You should buy where you know! Look in areas and neighborhoods that are familiar to you. If you live in clackamas you’re going to find different home make-ups than the west hills, obviously right? Point being expenses, which I’ll touc
-Don’t buy unless the home can cashflow from day 1. I know, “over time the loan balance drops and values increase or rent will eventually bring in more than it costs to own”, but this is risk. Unnecessary risk that you certainly do not need to be betting on as a new investor. There are plenty of other opportunities out there!
2. What is the cost to own the home? Expenses.
Ah, the numbers! This is where you get to really find out if a property will actually be putting money in your pocket each month or draining your hard earned savings. Your Expenses will include:
-Any repair costs if you need to get the home to a rentable condition.
-Vacancy Rate (avg is 5%-10%, however with our current market it can be 3%-0%, but it’s always safe to calculate conservatively)
-Any standard monthly maintenance (i.e. landscaping, snow removal, you get the idea)
-CapEx, which stands for Capital Expenditures. Which means big ticket items; like the roof, foundation, driveway, plumbing, etc. The stuff you might assume lasts forever, but doesn’t. This is typically accounted for at 5%, assuming you have an average aged home with an average floorpan. Obviously with new builds you may not account for this at all if you don’t plan on keeping the home for 30 years for example.
-Loan costs! Tip* avoid variable rate loans, these come with increased risk, risk you cannot calculate for if you keep your rental.
-And last but not least, property management. This can range from 8-13% of the monthly rent. Here at ProFast Property Managers ours is just 10%. Now, some people choose to self landlord their homes to ‘save’ money. But, if there was one thing more valuable than cash itself, it would be time. Time is something we can never buy back, the clock is always counting down. Hiring a quality (keyword) property manager lets you spend your time on more valuable goals. How successful do you think Costco would be if Craig Jelinek tried to do everything by himself? Right? Hiring people multiplies your time. Hiring a great property manager puts your investment on autopilot. While we’re dealing with your home, you could be searching for your next investment property. Profast Property Managers of Portland has different level of service to fit your needs. Maybe you still prefer to manage your rental alone, but need help finding great tenants, message us. We are always here for you.
3. What if rents are not high enough to cover the expenses?
Don’t buy it!
4.Can you increase value of the home?
Is there anything you can do to the home to quickly bump up the rental value? Newer appliances, hardwood floors, new lighting, paint, maybe you offer it furnished as well? These are all things you should consider when looking for your investment property, potential! On top of it being able to cashflow from day 1, knowing that you can make a few updates to increase the rent rate (demand) for your home is gravy. Maybe you use the income you got from the last tenant’s lease to pay for these updates, reinvesting!
Make your property search fun! Pick a handful of homes and go drive by them, this makes the goal more real. Seeing your opportunity is motivation. Write your goals down every morning with your cup of coffee, it will help give you a clear vision of where and what you want to do and be. And remember, if you don’t find anything worth buying you may be in a down market. If so, spend this time investing in yourself. Read more real estate books, more articles, more podcasts. Spend time improving yourself everyday and one day it will pay off.