Interested in Investing in Rental Properties? Here’s What You Should Do First

Interested in Investing in Rental Properties? Here’s What You Should Do First

There’s something exciting about the idea of owning a rental property.

Maybe you’ve been scrolling through homes online and caught yourself thinking, “I could rent that out.”Maybe you’re looking for another way to build long-term wealth. Or maybe retirement is getting closer, and you like the idea of eventually having rental income coming in each month.

Whatever sparked the idea, buying a rental property can be a great investment—but I always think there’s one important thing to do before you start looking at houses.

Figure out your plan.

I know. That doesn’t sound nearly as exciting as touring houses.

But trust me, it matters.

Start With the Numbers—Not Zillow

One of the easiest mistakes to make as a new investor is falling in love with a property before figuring out whether the numbers actually work.

A house might look like a great deal at $250,000, but the purchase price is only part of the equation.

You also need to think about the mortgage, property taxes, insurance, HOA fees if applicable, maintenance, potential repairs, vacancies and possibly property management.

Then there’s the biggest question:

How much could the property realistically rent for?

You want to look at the entire picture—not just whether the rent is higher than the mortgage payment.

And this is where having someone who understands the local market can be especially helpful. Rental rates can vary quite a bit from one neighborhood to another, even when the homes themselves look very similar.

Know What You Want Your Investment to Do for You

Before buying anything, ask yourself what you’re actually hoping to accomplish.

Are you looking for:

• Monthly cash flow?
• Long-term appreciation?
• A property you can eventually use for retirement income?
• A way to diversify your investments?
• The beginning of a larger rental portfolio?

There isn’t necessarily one right answer.

But knowing your goal can help determine what kind of property makes sense for you.

A property that’s perfect for someone focused on monthly cash flow may not be the same property someone looking primarily for long-term appreciation would choose.

Talk to the Right Lender First

If you’re buying your first rental property, don’t assume the financing will work exactly like it did when you bought your primary home.

Investment properties can have different lending requirements, and you’ll want to understand your financing options, down payment, interest rate and estimated monthly payment before you start shopping.

I’d much rather see a buyer understand their numbers ahead of time than find a property they love and then discover the financing doesn’t make sense.

Get the financial side figured out first. Then go house hunting.

It makes the entire process less stressful.

Decide How Much Work You Actually Want to Do

Here’s another question new investors sometimes overlook:

Do you want to be a landlord?

Because owning a rental property isn’t always as simple as depositing a rent check each month.

There can be maintenance calls, tenant questions, repairs, inspections, vacancies and all the little things that come with owning a property.

Some investors enjoy being hands-on.

Others would rather hire a property manager and have someone else handle the day-to-day responsibilities.

Neither approach is wrong. You just need to understand what you’re signing up for—and make sure the cost of management is included in your numbers if you plan to hire someone.

Don’t Assume the Cheapest House Is the Best Investment

This is especially important when you’re looking around the Memphis area.

A low purchase price can certainly be attractive, but cheap doesn’t automatically mean profitable.

Location matters.

You want to think about things like rental demand, nearby employment, schools, amenities, neighborhood stability, property condition and what future renters are actually looking for.

Sometimes spending a little more for a property in a stronger rental location can make more sense than buying the cheapest property you can find.

The goal isn’t simply to buy a house.

The goal is to buy the right house.

Keep Money Set Aside for the Unexpected

If there’s one thing I would tell a new investor not to do, it’s this:

Don’t spend every dollar you have getting into the property.

Houses have a funny way of needing something at the least convenient time.

The HVAC decides it has had enough. A water heater goes out. A tenant moves out unexpectedly. A repair costs more than you anticipated.

Having cash reserves gives you breathing room when those things happen.

And eventually, they will.

That’s not necessarily a sign that you made a bad investment. It’s simply part of owning property.

Think Like an Investor, Not Just a Homebuyer

When you’re buying your own home, it’s easy to get caught up in the things you love.

I love this kitchen.

The backyard is perfect.

I could totally see myself living here.

With an investment property, you have to shift your mindset a little.

Instead of asking, “Would I want to live here?”

Ask:

“Would my ideal tenant want to live here?”

That’s a completely different question.

And sometimes the most profitable rental isn’t the prettiest house on the block. It’s the one that checks the right boxes for the renters you’re trying to attract while still making sense financially.

Your First Rental Doesn’t Have to Be Perfect

I think there’s a lot of pressure online to immediately become a real estate mogul with multiple properties and a perfectly calculated portfolio.

That’s not reality for most people.

Your first rental property is a learning experience.

You learn what renters want. You learn what maintenance actually costs. You learn how long things can take. You learn what you would do differently the next time.

You don’t have to have everything figured out before you start.

But you should have a plan.

So, What Should You Do First?

If investing in rental properties has been on your mind, I’d start with these four things:

1. Talk to a lender and understand your financing options.

2. Determine how much you can comfortably invest.

3. Figure out what type of investment you’re looking for.

4. Start studying the local rental market before you start making offers.

Once you know those things, then it’s time to start looking at properties.

And if you’re considering your first rental property in the Memphis area, that’s where having a local Realtor can be really valuable. You want someone who can help you look beyond the listing price and think about the neighborhood, potential rental demand, resale value and the numbers behind the property.

Because when you’re buying an investment, you aren’t just buying a house. You’re buying a business decision.

And the best time to start making smart decisions about that investment is before you make an offer.

Kelly Day, SRES, SRS, AHWD, PSA, RENE
Multi Million Dollar Club
Broker Lic # 365811
simpliHŌM
901-289-9227
855-856-9466
[email protected]