Congratulations, you just bought your first rental property! The first purchase really is a huge step towards building financial freedom. Ideally, you’re not going to stop at just one property purchase, but build a portfolio of multiple properties to get your passive investing headed in the right direction. I’ll talk more about this later, but it’s definitely a good idea to be planning to scale your investments early on!
Right now you may be elated, excited, apprehensive, or even terrified. And it’s ok to feel all of these things, because there’s a lot of work to be done now. Buying a house is only the beginning of your real estate investment journey.
Even as a passive real estate investor, you have quite the road ahead of you! Whether you’re investing out of area or locally, here’s some next steps for you in order to put your best foot forward:
Line Up Your Property Management Team
Ideally, you’ve already done your due diligence and selected a team prior to closing on your first property. Your property management team is your most valuable asset as a real estate investor. Involving everything from keeping your house cared for and collecting rent, to making sure your residents are happy, property management is essential to passive investing. And while your management company is on your side, you are ultimately in control. So don’t be shy. Make sure that any concerns are addressed and that you’re comfortable and confident with the team you’ve chosen to manage your investment.
That said, make sure you’re on the same page with the management team and that there’s a mutual trust. Be certain to iron out specifics of the lease agreement, fees, expectations, etc. Now is the time to sort out details to be sure that all parties agree on how your property will be managed. Decide what types of information you want to know from them and be sure that you’re satisfied with the arrangement before things really get started.
This is something else you should already have secured prior to closing on your property. However, there are lots of different kinds of insurance, and dwelling coverage is only scraping the surface. Before you rent out your investment property, there are several types of insurance you should look into: Eviction insurance, Fire & Hazard and Liability are just a few. There are other types as well, but you should do your research and make sure you’re covered for any situation that can occur. Consult an agent if you’re unsure of the best policy for you and they can explore coverage options that best fit your investing needs.
Solidify Your Debt Payment Plan
Unless you purchased your property in all cash, you most likely have a mortgage or loan to repay on your investment property. It’s best to start planning early when it comes to tackling your debts, as that will help keep your financial goals on track. You also want to maintain a good debt-to-income ratio in case you ever decide to take out a second mortgage for another rental investment. A good ratio will help ensure that the bank approves you for any future loans.
When looking at your finances, have a solid, strategic plan to pay off your debts while maintaining positive cash flow.
Scope the Work to Be Done
If your purchase was not a turnkey property, you most likely have a few repairs or possibly even some remodeling that needs to happen. Now is the time to make a game plan and outline any work that should be done before residents move in. While you may not do all of the renovations immediately, you should make plans for what needs to be completed so that you have an idea of costs and vacancies later down the line. It wouldn’t hurt to go ahead and start contacting companies and comparing quotes from contractors so that you can be prepared for future renovations when the time comes.
Go ahead and take care of necessary repairs first, boost your property value, and have your home ready to rent for your first residents for the best price you can manage.
Start Scaling & Planning for a Portfolio Immediately
I’m going to assume that you did not purchase a portfolio on day one. It’s easy for passive investors to get into the mindset of thinking their one property will catapult them into investing success. Sometimes it can, but most likely it won’t. My advice has always been to never buy just one property and then sit and wait. Having a multiple, single-family home portfolio will always be a better long-term investment that produces larger returns. Having only one house, especially for a long period of time, will not be your best investment. When you only own one property, anytime there’s a repair or vacancy, it seems like it isn’t ‘producing’ like it should. Whereas if you have four or five (or more) houses, a single vacancy and occasional repair will not be such an anxious event. Your cash flow from your other properties will certainly be able to cover any issues that can crop up on another property when a problem arises.
Beginner real estate investors can sometimes fall into two camps: being either too passive and disengaged, or feeling panicked and overwhelmed. And as the owner of these investments you really can’t afford to be either. Even though you’re a passive investor, you need to be engaged and strategically proactive in your real estate investments. Anticipating any problems, addressing issues, and getting involved when you need to be. You may have a property management team that can take care of most things, but you should always be on top of situations that may arise. After all, these are your finances and your properties, ultimately you are the one who will direct their course.
Set Up Your Information Feed
Throughout all of this, you want to make sure that you are staying informed. This can mean getting updates and reports on your properties from your property management company, but it also means continuing your education. Be sure to invest in your future as an investor, look for mentors, and stay hungry for knowledge. Connecting with other passive investors, reading books and blogs, and constantly looking for good information about investment strategies means you’ll always be prepared to make the best decisions when it comes to your investments.
Now that you’re over one of the bigger hurdles and your managers are going to take care of the day-to-day details, you can breathe a little…but you can’t stop. Don’t forget to nurture your mind and continue to grow!
Chris Clothier, author of The Turnkey Revolution, manages the development and implementation of sales and marketing for Memphis Invest. He helps potential investors define their purpose for investing in real estate and educates peer companies on best practices in the emerging turnkey real estate industry. He is a contributing columnist for BiggerPockets and an experienced speaker who regularly addresses audiences of real estate investors and business professionals.