How to Buy and Manage Rental Properties in 2021

You want to replace your 9-5 with rental property income, but do you have a plan? In order to successfully achieve this goal, you need a clear set of actionable steps to get you started.

Develop a Real Estate Business Plan

Before jumping into real estate investing for the first time, an excellent exercise for aspiring real estate investors is to draft a business plan. Knowing what you want to achieve with real estate is key to being successful. 

How many properties would you need in order to replace your 9-5 income? You might not have a concrete number yet, but at least have an overall idea of the minimal amount of money you’d like to make from real estate investing.

Another question to ask yourself is if you’ll hire a property manager right away or manage your properties yourself.

Pro Tip: As soon as you can afford to, investing in professional rental property management is the quickest way to scale your business. You’d be surprised how much of your time can be eaten up by tending to properties, and this valuable time could be spent on growing your business and acquiring new properties.

If you are going to manage your own rentals in the beginning, using software such as a CRM (Customer Relationship Management) to keep track of current tenants, their leases, and new tenants your interview will keep you organized. You should also be prepared to create files on your rental properties, keeping notes on repairs and future maintenance projects.

To learn more about managing your own rental properties, check out this article: Property Management Tips and Tricks  

Curate Your Rental Team

Following your business planning, you’ll want to start pulling together your rental property team. 

Here’s a non-exhaustive list of professional help to seek:

• A real estate agent
• An accountant
• An attorney
• A private lender
• Professional property management
• A contractor and plumber for property maintenance
• Cleaning services (especially for short term rentals)

Of course, it is possible to use different lenders, agents, etc each time you make an investment property purchase and as you need help growing your business. However, making strong connections with individuals and having a team to rely on will streamline your real estate investment efforts. It’s also worth noting that you might not need a big team right away. You can always grow your real estate team as you need help with certain aspects of your business.

Research Target Markets

Knowing the best markets to purchase an investment property in is a critical aspect of running a successful real estate investment business, and it is especially important for rental property owners. Why? Because you won’t see the kind of cash flow you are looking for if you choose the wrong market.

In order to get a good sense of profitable locations, do some research to find out which markets are heating up. Good indicators of a strong market are:

• Strong economy
• Job growth
• In-migration
• Steady real estate appreciation
• High price to rent ratio

These factors represent a real estate market that will thrive long term, and hopefully provide a positive cash flow and high occupancy rates.

To calculate the price-to-rent ratio, divide the median home price by the median annual rent. If the number is between 1 and 15, you’re looking at a market in which it is likely more affordable for residents to buy than rent. This is an indicator that you may have a harder time keeping rental units full. If the price-to-rent ratio is above 20, however, you should not have trouble finding plenty of tenants for your investment property.

Get Connected with Private Lenders

If you’ve tried getting a mortgage through your bank and they’ve declined you, and you don’t know where to turn for capital, Connected Investor’s platform is a great place to kick start your real estate investing business. 

Here are a few good reasons to use our private lenders:

• Instantly connect with private lenders that meet your criteria
• Find loans for investment properties that don’t require a credit check
• Have lenders compete against each other to earn your business
• Score deals that often require little to no money down
• Beat the slow-moving pace of banks and get the money you need fast

When it comes to starting and growing your rental property business, being held back by obstacles like the time it takes to get a traditional mortgage is just not an option. Especially in a market with low inventory, you need financing fast in order to grab the best deals before they’re gone.

If you have:

• Poor credit
• A small down payment (or no down payment)
• A poor debt to income ratio

…don’t let any of these factors stop you from making real estate investments. Check out Connected Investors’ private lender platform here for a quick match to the property investment loans you need.

PinPoint Potential Investments

Once you’ve nailed down the perfect business plan, know your target market, have a team complete with a lender ready to go, you’ll need to pick up your first investment property.

A big mistake first-time real estate investors make is relying on real estate agents to find them property leads. Though you will need a real estate agent to help you close the property transaction, you don’t need to lean on them for getting property information. In fact, you shouldn’t.

Real estate agents get their information from the MLS, along with brokers, home buyers, and pretty much everyone else. While it’s a great resource, it certainly isn’t the only one, and limiting yourself to the MLS means giving up a ton of potential deals.

Experts will tell you that some of their best real estate investments were:

• Probate properties
• Vacant properties
• Pre-foreclosures
• Courthouse auction properties
• Bank owned homes
• Zombie properties (in pre-foreclosure and vacant)
• Properties that are for sale by motivated sellers
• Shadow inventory (bank-owned property that is not listed)
• Wholesale deals
• Online auction properties

Typically, these properties are more challenging to find, especially for real estate investors just starting out. At Connected Investors, we built software to find these kinds of “off-market” properties so investors can quickly find the best deals on their own terms, with no experience required. 

To get started looking for properties for sale in your target market, try a free demo of our PiN 5 software, here.

Build a Portfolio with Cash Flow and Equity

After you’ve closed on your first property, your real estate investment business has only gotten started. You’ll need to get your property rented, collect the cash flow, and plan for your next investment.

There are a few different strategies investors in real estate use to quickly fund their next property, even with outstanding loans.

 

• Reinvest Cash Flow. Instead of pocketing your monthly cash flow or using it to pay down debt, you can use it to quickly compile savings that will make up your next down payment on a property.

 

• Reinvest Equity. Many real estate investors take out home equity to fund a new investment property. This is especially effective if you buy a property for less than it’s worth.

 

 

As soon as you can, by whatever means you can, invest in your second rental property. Before long, you will build a steady stream of cash flow that allows you to pay off loans, invest in more rental properties, and eventually quit your 9-5.