The #1 mistake made by real estate investors is that they use emotion to make purchase decisions on rental properties. With a buy/hold strategy for rental properties, emotion should not get in the way of where and how to make your investment. There are two different investment strategies to purchase rental properties, and many real estate investors use a combination of both:
- Appreciation: Some investors will focus on expensive markets where the value is in the appreciation of the land. These investment properties tend to be in major urban cities, and there may not be any cash flow (in other words, you pay more in your mortgage than you receive in rent). But, a long-term hold on the property can eventually turn it into a cash flowing operation with higher value.
- Cash flow: This is used by most professional real estate investors, where they are looking to receive immediate cash flow after purchasing a property. Once they put a down payment on the property, typically 20 percent, then the mortgage is paid via the tenant's rental payment.
Neither strategy is a get rich quick, and rental properties require a long-term investment.
Top 3 things you need to make your rental property purchase a success:
- A financial spreadsheet to calculate out the numbers: We have provided it in both Excel AND Google Sheets below. You can download and use this to make your investment decisions. Please note that this is a template and you are responsible for checking the numbers, formulas, and math.
- A great REALTOR® who knows the market: They will help you make the right decision. One mistake that can be made is making the numbers look great on Excel when in actuality, the property is expected to have higher evictions than what you have
- Capital for the investment: Before you even look at the rental properties, you want to make sure that you can afford the down payment or find alternative financing to fund your investment.