Three Things to Expect When Buying your First Rental
So, you are purchasing your first rental and you are a bit nervous. Trust me, I have been there and I know exactly what is going through your mind. “Am I making the right decision?” “Am I really ready to take on a rental property?” “What is going to happen when this property closes?” Trust me you are making the right decision and all these first time buyer jiggers are normal.
Let me answer all your subconscious questions for you. You are making the best decision ever and you are totally ready for a rental property. You are making this decision for your future and for that you deserve a cheers, aka a drink.
When I purchased my first rental property I was scared and a bit naive. However, my first rental experience was the best experience I learned so much from it! First thing I learned is to always have a property management company, you do not want to manage your own property especially if you have multiple units like I did. The amount of phone calls I received about toilet leaks, loud neighbors, someone smoking in the halls, and oh so much more. It was enough to drive me insane so, learn from me if you have more than 2 properties I say go get you a great property manager.
Tip: Your local realtor has the ability to property manage so, if you have a great connection with your realtor I would highly suggest asking if they would consider managing the property for you.
I would like to share with you 3 things to expect when purchasing your first rental property.
These 3 topics I want to share are:
1. Create a plan for easy transitions
2. Expect tenant vacancy
3. Have a hefty savings
Create a Plan For Easy Transition
Once you purchase the property normally, the previous owner will help for a day or two but, will want to move on a few days after the close. Same with a lot of Realtors, unfortunately, so that means that you need to have a plan in place for a smooth transition. I have learned that there are some tenants that LOVE to take advantage of messy management transitions. For instance, my favorite is when people intentionally pay late or say that they already paid rent for that month trying to get away with FREE rent. I had this happen to me before and it is the most frustrating thing to deal with because you already have a million and one things on your plate. Now, your Realtor should have given you all the rent history before close just make sure you have that handy.
When it comes to a smooth transition of ownership I highly recommend going to the property once funding cleared and introduce yourself to your new tenants and give them a welcome packet. Let them know who to call for maintenance, any change of rules and regulations you have, your or your property managers phone number and email to contact them, when lawncare is scheduled, etc. You want to make sure that everything is in place so, if they have any questions or concerns you are not caught off guard and can express a plan.
This will the time that tenants have questions on any pending work request or rent related questions. Before closing, make sure you have at least the pending work orders and rent history for each tenant, this is something that your Realtor should be able to give you. Ideally, you want all work orders to be completed before purchase however, I have seen that things simply slip through the cracks and now you have an angry tenant.
Expect Tenant Vacancies
I know every Guru in real estate says that your should have a tenanted cash flowing property and you should, but you should also be prepared for turnover. Some people will leave with the closing of the building from leases expiring or simply because management changed. I have seen this a few times where I will come in with new rules and regulations and the tenant does not like them and will vacate the property. Do not be afraid of tenants leaving especially if it is due to your new rules and regulations. By them leaving you could have just dodged a horrible bullet.
Have a Hefty Savings
Of course you need the saving for the down payment on your loan, any closing fees, Realtor dues if any, appraisals, inspections and all that good stuff that comes with the closing and the closing only. I would encourage you to have a bit more in your savings account to cover your property management starter fees, potential tenant vacancies, lawn maintenance and any work orders that will come your way. I would encourage you to have at least an extra 3% of the sales price in your savings account. This amount will help you start a saving accounts for the property, and that property only, it will cover any “what if” scenarios.
When you are purchasing your first rental property it is an exciting and frightening place to be in. Just remind yourself that rentals are a long-term play and has the potential to give you extreme amounts of passive income. You are making an investment for your future and I am so happy for you.