Have you been thinking about buying a rental property? Not sure where to start? Keep on reading…
Anyone can buy a rental. Anyone can start a business. Anyone and everyone can do anything and everything. Of course, most people won’t do much. It’s a whole lot easier to just read articles and create excuses while life passes us by. That’s not what this site is all about.
This article is going to look at the idea of buying a rental property in your 20s as a source of passive income/stability for the future…
Can a young punk buy a rental property?
Spoiler alert: yes you can buy a rental property or any other wealth-building asset in your 20s. No, you don’t have to be smart. You might want to try to be as charming as me though (maybe not).
I try not to talk too much about myself when I meet someone new. I want them to remember me based on what they received out of that conversation. I don’t want them to think I’m rich or poor. I never tell anyone about my blogging or my rental property. I don’t mention those types of things unless they come up in conversation.
Where am I going with this? I was sort of annoyed once. A buddy and I were enjoying drinks on a patio when we ran into some girls from school. We were having a blast and then my friend mentioned how the night began at my condo around the corner (I was living in my condo that summer, 2010). The girls asked about it and were intrigued because of the location. Then my friend kindly interjected with:
“He’s lucky. His parents bought it for him.”
That’s what my buddy said. Out of nowhere. These girls were my friends and they thought he came across as bitter. He just wanted to feel better about himself. He wanted to put me down and feel better about himself for not saving money.
Well, I don’t take anything from my parents and I certainly don’t believe in throwing the word luck around. I’m lucky for many things. I’m lucky to have my friends and many amazing experiences. There are other things that I worked for. This is the point of this article.
I really wanted to share with you guys how you can buy your first rental property in your 20s.
How can you buy a rental property (or save for anything else) in your 20s even when you want to party?
For the remainder of this piece, we will look at how you can buy a rental property in your 20s. We will discuss some theories. strategies, and we will even look at the numbers behind it all.
What’s the theory behind saving up for any major purchase?
Set the goal first.
What’s your goal? As corny as most advice on setting goals is, it’s true. You don’t realize this until you actually try and set some goals for yourself. Without concrete goals or plans you really don’t feel like saving money because it’s tough for us to see the point. Why not buy a new iPad? I struggle with this all of the time personally.
What’s your goal? If you want to own a rental property as your source of passive income, you need to start saving for it right now. That first property isn’t going to be cheap. You’re going to be hit with all sorts of random fees. Get ready for it. The good news is that we have included a rental property calculator at the point of this post. Pretty sweet!
Why idly go through life?
Stop waiting for something to happen. Stop waiting for your turn. Go after it. It’s easier to ask for forgiveness than it is to ask for permission. If you want to buy a rental home, you need to start planning and saving for it right now.
— But how, Martin?
Work your butt off.
Excuses are great. We all have one or fifty.
Before you make any big purchase or hit that passive income lifestyle, you have to put the work in first. That is just the reality. You have to go through the stage where you work hard first. Then you can reap the benefits. Nobody ever drowned in sweat. As much as I love lifestyle design articles and the idea of taking it easy in life, I also strongly believe in putting in the work. You have to be willing to work hard to catch your first break.
Save money where it counts.
We looked at how we can save up for literally anything. The numbers don’t lie. You have to save money where it counts and when it matters the most. You can start off by paying yourself and then working on your problem areas one at a time. Then you can increase your income.
All that matters is that you save huge money. Your first source of passive income will require either a ton of time or money or both!
Now it’s time to dig a little deeper on this investment home…
What about the actual property?
Now it’s time to find the actual property that you want to use as an investment. This is going to be one of the most important decisions you make in your life (aside from maybe marriage), so please take it seriously.
Your first rental property can make or break you — no pressure of course.
How do you go about finding your first investment property?
Well duh! You already know that you have to look around. This is common sense. However, I need to stress that you can’t just invest in the first property that you see. You’ll have huge buyer’s remorse. I don’t want to see you regret going down this path. You need to be strategic about your approach and what you look for in that first rental place.
Once you look around a bit, it’s super important that you answer the following questions as they will determine everything:
- What sort of investment are you looking for? Do you want something to flip? Are you in it for the long run? Do you want something that’s already setup and ready to rent out?
- Are you handy at all? Can you handle the reno-related work around the rental? Do you have any skills? I personally do NOT have any skills in this field. Thankfully for me, I have the skill to go to the store, buy some vodka, and bribe my European buddies to come over and help out. I personally couldn’t get anything done on my own.
Decide what kind of investment you want.
This is where things get tricky because we all want something different out of an investment home.
Some of us want to save money and buy the cheapest property possible. Others value their time more and would rather spend the extra money to purchase something that’s ready to rent out right away.
Do you want something brand new? Are you willing to do some work?
I caught the recent UFC at my buddy Roman’s place. It was a pretty interesting experience. We ended up watching the program on a projector that he had installed in the basement. Within six months, he has renovated every square inch of this place. I’m totally jealous and would love to have this ability. I can cut the grass and that’s about it.
With my first rental property I purchased something pre-construction. This meant that I had a few years to save up and that I didn’t have to do any work on the place since it was coming straight from the developer.
Other friends of mine have purchased dumps so that they could get a deal and work on the place. My friend Robert loves this sort of stuff. He grabs a cigar and turns a dump into a freaking palace. I hate renovation.
What sort of investment do you want? Only you can answer this.
Do I have to invest domestically?
Some of the best rental property is statistically not where you live. Will you give up on the opportunity just because it’s harder to manage overseas property? If you have some knowledge and experience in real estate you should consider locating opportunities elsewhere in the world.
Use professional services to achieve that – local real estate agents, local lawyers and of course money transfer services (more on moneytransfercomparison.com).
Are you ready to buy that rental? It’s time to start saving…
The numbers behind your rental property purchase (time for the fun stuff!)
As much theory and psychology as there is involved in money, sometimes you just have to run the numbers.
Does your property have to be cash flow positive? Can it be neutral? What if you have to feed it?
I really think it depends on how long you want to be in it for. I don’t think there’s an issue with something that’s break-even. If you’re in it for the long run, then your goal will likely be to have the tenants pay off the mortgage and create an income generating asset for you.
What can you do if you want to start saving for a rental home?
Now it’s time to actually do something.
Before you look into finding the right home, you need to have some money! How do you do this?
Setup your banking account.
You need the right checking account to start getting your money together. You want a check account that is FREE and comes with a savings account so that you can move your money around whenever you want to.
This is an important tool because you want your money to be safe as you look around for a place to buy.
Work on your credit score.
What’s your credit score like? This is what the bank will look at to determine if you’re even worthy of the loan and the rate that you should pay based on your reliability. With a poor credit score, you might not even be able to buy a rental property. Yikes! You need to work on this right now!
Keep on looking around.
Look around. This is a huge purchase. There’s no need to rush anything. Find the right property for you.
Do you guys have any questions about buying a rental property? Once you’re done playing around with the numbers and figure out how much you need to save up first, I would love to answer any other questions that you might have! We’re here to help each other out.
5 thoughts on “How to Buy Your First Rental Property”
I just became a landlord for the first time. My journey was a little more organic in that we are renting out our former residence. Being a landlord brings in some nice extra income, but we did just have to spring for a new HVAC unit in our rental, yuck!
Congrats Nick! Why did you choose to keep the former residence?
Great post and tips! I am currently saving for my first rental as much as possible while knocking out my students loans. I’m hoping to start with a duplex that cash flows as a rental and I would use one side as my primary residence to start (owner occupy mortgage). I think this will be my best bet for getting my foot in the real estate investing door.
That’s a brilliant idea Blair. How are prices of those in your area?
I love all of these tips and find them very doable for even the most novice of property owners. I think the key here is to break the process down into smaller steps so the large task of purchasing a rental property does not become so overwhelming. There are many creative ways to finance your first rental property and following tips such as yours will help get interested investors across the finish line much faster.